This is a Front-Runaround Sue Market

Just as markets began to front-run what they perceived as a peak in inflation and a new era of disinflation (as Jay Powell himself basically said last week) since the swing lows back in October 2022, then began to aggressively celebrate a possible soft landing in recent weeks on top of that, if there are second thoughts about that now we could easily see markets front-run the other way rather quickly.

Specifically, in light of the red-hot jobs report last Friday, in front of Powell's speech tomorrow at the Economic Club of Washington, D.C. the risk is that he walks back his comment at the presser last week about "disinflation." 

But perhaps even more important is what the market now thinks about it--If the two rate cuts the market has been pricing in for the end of 2023 suddenly disappear that almost assuredly sees risk assets take a hit. 

Simply put, history says that The Fed does not achieve soft landings during times of entrenched inflation--1994 was a soft landing but that, in fact, was during a secular disinflationary regime and a secular bull market in equities. 

Now, however, the risk which markets have been overlooking for the better part of four months is that we are in a new long-term secular regime of inflation and bearish trends for growth stocks. And just as the perceived front-run on soft landing hopes was aggressive, the subsequent front-run of inflation staying sticky high can be even more so. 

For confirmation of this reversal, continue to watch for Dollar strength and weakness in Treasuries.