Subjective market review (14-Feb-2024) and my key takeaways from the hot US CPI print:
1) in the optimistic variant, hot inflation moves the main macro scenario forward by 1-2 months (assuming that inflation related to broad services occurred "once" in January, as a fairly standard effect of increasing prices at the beginning of the new year (such effect occurs in most countries),
2) and in the pessimistic variant (several months of higher services inflation, not only in January), the main macro scenario (i.e. completion of the current business cycle) is moved forward by 3-4 months. In this variant, the chances of a hard landing at the end of the year or after US elections in Q1 2025 increase,
3) now there is a growing chance of a correction on the S&P500 similar to the one under the previous H4L (higher for longer) market narrative from August - October 2023 - but at the moment I assume that one month of hot inflation is still not enough for a drawdown of 10.3% (as in 2023),
4) the situation is becoming more and more similar to the long FED pause in 2006-2007 - when the acceleration of growth in H1 2007 extended the pause up to 15 months (today's equivalent is the first rate cut only in October 2024 - see Figure 1), and the 10Y yields of US Treasuries returned at the end of the pause in 2007 to the previous highs seen around the last rate increase in June 2006.

In 2007, the long pause was quite beneficial for the stock market, with the S&P500 rising a total of 25.6% from the last rate hike to the top of the cycle - see Figure 2. But then we didn't have the same inflation problem as we do now.

5) the current correction (both in stocks and bonds) may well fit into the subsequent recovery of markets before the US elections.
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