The BIGGEST interest rate shock in modern history. A thread on how bad things can get. 📉🤯💲 1/n
Let’s start with the broader economy. This is the largest move in the yield curve since the mid-1980s and certainly the biggest move in the era of financialized economies
The move suggests that ISM will print at index 30 in Q4 2023. A material recession is likely upcoming
2/n
The move suggests that ISM will print at index 30 in Q4 2023. A material recession is likely upcoming
2/n
What does it mean for equities?
The move in the 10yr real rate is the worst seen in decades. 10yr real rates suggest forward P/Es should trade around 11 implying a level of 2700 in S&P on UNCHANGED earnings assumptions
That is a drop of more than 30% from current levels
3/n
The move in the 10yr real rate is the worst seen in decades. 10yr real rates suggest forward P/Es should trade around 11 implying a level of 2700 in S&P on UNCHANGED earnings assumptions
That is a drop of more than 30% from current levels
3/n
What does it mean for housing?
The move in the 30yr mortgage yield is simply unprecedented. The current average level around 7% implies a 20% drawdown in residential prices over the next 9-12 months on historical correlations
The correlation is VERY strong
4/n
The move in the 30yr mortgage yield is simply unprecedented. The current average level around 7% implies a 20% drawdown in residential prices over the next 9-12 months on historical correlations
The correlation is VERY strong
4/n
What does it mean for unemployment?
As housing goes, so goes the economy. The NAHB homebuilder’s sentiment is the best gauge of future unemployment (leads 9 months).
The historical relationship points to >7% unemployment in 9 months from now
5/n
As housing goes, so goes the economy. The NAHB homebuilder’s sentiment is the best gauge of future unemployment (leads 9 months).
The historical relationship points to >7% unemployment in 9 months from now
5/n
Unless central bankers admit to this outlook soon, it is safe to say that a pretty deep recession is unavoidable.
I don’t think they will admit to it (before it is too late), why a soft landing is very unlikely. More in my FREE newsletter here.
6/n
andreassteno.substack.com/p/steno-signal…
I don’t think they will admit to it (before it is too late), why a soft landing is very unlikely. More in my FREE newsletter here.
6/n
andreassteno.substack.com/p/steno-signal…
Would you like me to create a similar thread for other regions?
Please leave suggestions below. Thanks for reading.
7/n
Please leave suggestions below. Thanks for reading.
7/n
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