Closing Thoughts for the Week

Conditions are starting to look a bit more risk-off here. It’s a bit of a confusing market here with no single sector or theme really leading the markets. The underlying economic data for the U.S. still looks pretty good, but inflation looks like it will remain a sticking point. My original 4-5 week timeline for risk-on conditions still looks like the base case scenario.

If you look at just the S&P 500 and conclude that up is risk-on and down is risk-off, you miss out on a lot of the bigger picture and it seems like investors did a lot of that this past week. For as much as some want to will the bear market narrative into existence right now, an objective data-driven look at conditions doesn't support the notion that this should be a near-term concern. I maintain the view that a melt-up in equity prices is a distinct possibility here.

Was he dovish or wasn’t he? Powell, at times, seemed dovish, but contrasted that with other statements he made. It’s almost as if Powell is waiting for the car to crash into the guardrail before he attempts to steer it back on the road. I suspect Friday’s job report is going to give him enough cover to support his current stance though.