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On September 17, Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, said that the current rally that has pushed U.S. stocks to new highs may experience some volatility in the coming weeks, but is expected to end strongly before the end of the year. Rubner wrote that the S&P 500 has risen 17% from its low for the year, and short-term risks include overvaluation, seasonal fluctuations common in September and October, and possible selling by trend-following funds. However, these potential signs of weakness are unlikely to last, as the tailwinds supporting the stock markets rise - including corporate spending on artificial intelligence and demand from retail investors - will continue to power the market in the final months of 2025. "Stay positive on structural demand, but hedge against short-term risks, as September to October remains a fragile window," Rubner wrote, adding that investors should view short-term pullbacks as buying opportunities.European Commission President Ursula von der Leyen stated that Russias war economy relies on revenue from fossil fuels. To prevent this, the Commission will propose an accelerated phase-out of Russian fossil fuel imports.European Commission President Ursula von der Leyen: Discussed with Trump strengthening our joint efforts to increase economic pressure on Russia through additional measures.European Commission President Ursula von der Leyen: I had a pleasant conversation with Trump.Microsoft (MSFT.O) shares fell 1%.

Powell Got One Thing Right, “high interest rates … will bring pain”

Alice Wang

Oct 17, 2022 16:29

Bonds, currencies, stocks, and precious metals will all see exceptionally high volatility as a result of the recent string of very significant rate rises.

Correlation between Bond Yields, Rate Increases, and Inflation

The September CPI inflation data, which was published by the BLS yesterday, revealed a 0.4% rise in inflation for the month of September. According to the data, the CPI inflation index decreased by 0.1% from the previous month's year-over-year of 8.3% to 8.2% in September. The core CPI, however, attracted the most interest. September saw an increase in the core CPI from 6.3% YoY in August to 6.6% YoY.


The temporal lag between interest rate increases and actual inflation is inherent, and the Federal Reserve prefers to base its monetary policy on the core level of inflation. In spite of this, a rise in core inflation after the Federal Reserve aggressively increased interest rates from near zero to between 300 and 325 basis points over the course of the last five consecutive FOMC meetings this year—including three consecutive rate hikes of 75 basis points each in June, July, and September—clearly indicates that the recent rate hikes are having a nominal effect on reducing inflation.


However, they have significantly impacted the United States' growing debt instrument yields. After accounting for today's 1.68% rise, the 10-year Treasury note yield has now above 4% and is sitting at 4.02%. Thirty-year U.S. bond yields are not far behind, at 3.997%.

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