It has been an interesting week thus far.  The much-anticipated Valentine’s CPI release combined with the Retails sales data has caused a dramatic shift in expectations for the future path of Fed policy. The market’s expectations for the terminal rate have increased from 4.75% to almost 5.25%, which is in the low end of my longstanding 5.25%-6.0% range, nearly all the easings that were priced in during the first five weeks of 2023 have now been pushed out to 2024, and the total amount of expected Fed accommodation has fallen from 200bps to roughly 160ish.

My interactions with clients have been filled with a lot of confusion and frustration, and they are trying to better understand what may be occurring.  For the most part, if one is more open to technical analysis and charting, the recent price action seems justified to this group of folks.  However, if one is more fundamentally driven and trying to understand things using a data-driven logic of what the market is pricing in for Fed expectations, the economy, earnings, and valuation, a common comment is “I don’t quite understand why the market and certain areas are behaving the way they have been”.  For the record, I have been in and remain in this group as my key indicators are not supporting th...

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