Never make forecasts, especially about the future.

So, with that in mind, we’ve got US CPI prints out overnight.

A few in the market are suggesting we’ve seen “peak fear” from the Fed, predicated on the idea that inflation will come down eventually, and that the market has over-reacted to the idea of higher rates by selling off growth stocks too aggressively.

We disagree, but with some nuance.

Firstly, absolutely, inflation will moderate, because the Fed will make it so. Either it moderates that way, or it moderates through the simple passage of time, as supply chains unkink, and the supply side expands.

That said, for tomorrow’s print, I think it difficult to envision such a moderation beginning now, as commodity prices are still close on (or in some cases making whole new ones) fresh highs.

But, that’s a bit less relevant. The real yield story is what is doing the damage to stocks on PE’s of 30x or more.

Now the real yield is driven partly by the Fed, and partly by the structural production factors of the economy.

And this real yield is sitting at minus 50bps. I think the Fed would like to see this number slightly above zero. Hardly huge, but, for the most part, back to the pre-pandemic level.

That’s what “removal of extraordinary accommodation” would look like, and that’s why I think we cannot yet be past the “peak Fed” fear.

All of this is a long winded way of saying rallies in tech, seen today, don’t appear sustainable to our minds, just yet.

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