Daily Brief - Can the economy take 75bp?

TLDR

Inflation called and the Fed responded. With an unexpected 75bp hike, the Fed earned the respect of the market, which responded with a relief rally (remember when Trump was elected?).

So the market liked it (for a day). But can the economy take it?

So far, leading indicators show good readings, but we remain wary of a consumer strike.

The TOGGLE Market Checklist

A few key points paint a positive picture: Citi Eco Surprises seems to have bottomed, New Orders PMIs rose and so did S&P forward earnings to a new high! Citi inflation Surprises are moderating and - whilst the market is still very expensive, positioning seems clearer than 2 weeks ago. And seasonality is good for June-Aug!

If there’s one chart we’d suggest you look at is the Forward EPS for S&P 500, which keeps making new highs in spite of all doomsday predictions.

Show me the data

Here are the links to all the data points discussed above:

• Growth. US Citi Economic Surprises / Learn ↗
• Growth. US ISM New Orders / Learn ↗
• Inflation. US Citi Inflation Surprises /Learn ↗
• Earnings. SPX Forward Earnings / Learn ↗
• Valuations. SPX Forward P/E / Learn ↗
• Valuations. SPX Equity Risk Premium / Learn ↗
• Positioning. SPX Positioning / Learn ↗
• Seasonality. SPX Seasonality next 3M / Learn ↗

Idea Spotlight: Capital One

Capital One's realized volatility dropped to 46.89 and historically, this led to a median increase in price of 18.23% over the following 6M. TOGGLE analyzed 18 similar occasions in the past to produce the median projection and this insight received 7 out of 8 stars in our quality assessment.

"Even with higher rate and inflation, Capital One looks good" says Seeking Alpha.