Not a single talking head on any network is predicting 5.5-6% on the 10-Year Treasury ($TNX).
In four days, the $TNX has moved from 3.9% to almost 4.4% now. Is China selling aggressively? If I were them, I certainly would be.
US Treasury Secretary, Scott Bessent, has to be scratching his head at this point.
IF the $TNX busts thru 5%, watch out. It’s not going to stop there. There’s little resistance to 5.5-6% on the 25- year monthly. Take a look:
While a recession appears to be the base case for most economists suddenly, interestingly, Nouriel “Dr. Doom” Roubini is predicting no recession this year.
Remember, it will take two quarters before the economy feels the full inflationary impact upon prices. It's hard not to see a recession – at least for me. Playing the “What If” Game is essential for investors these days as we try to model out the potential scenarios that may or may not play out. As such...
What If inflation is concurrently poised to accelerate to 6% (instead of just 5%)? Forget rate cuts. We would need a few rate hikes...
Which brings me to a new wrinkle, one my inner voice keeps returning to repeatedly:
What If the $TNX jacks up to 5%+ as a recession unfolds? What multiple do we give the S&P 500 then?
Yikes, mate.
It's easy for me to get to a $375 LT downside target on the SPDR S&P 500 ETF (SPY). Simply apply a 15.5x multiple on $240 in EPS.
Heck, I could even argue that this toxic brew for equities could compress multiples down to 13-14x, even in this cycle. Down to 10-11x a few years out, in another, smaller bear market down the road.
Let's see. No matter what lies ahead for the $TNX, for equities, we have entered the most vicious phase of the bear market.
After seeing 1,400+ new 52-week lows on the NASDAQ a few days ago, this bear is rapacious and poised to ravage any remaining high multiples stocks still out there.
With slower growth on the horizon for almost every company, the odds of terrible Q2 guides are growing by the day.
While I don't expect to see back-to-back days of 7-8% swings like we did the past two days, EVERY DAY, should the 10-year continue spiraling toward 5%, then watch our below.
Another 10% lower over a few days would be in play, not to mention a potential surge in the S&P 500 Volatility Index ($VIX) to and through $100, before a potential climax to 125-150.
P.S. in the span of 25 minutes while writing this quick piece, the 10 year jumped from 4.37 to 4.41.....to me, it feels like we are going to see some even crazier shit go down in the coming days and weeks.
Stay tuned…
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