Bloomberg Intelligence's 'Equity Market Minute' 1/13/2023

Gina Martin Adams discusses the bond market's growing comfort with the idea that the Federal Reserve may pause or pivot its monetary policy in 2023. She highlights the significance of the two-year Treasury yield crossing under the Fed funds rate, a reliable indicator of policy changes. However, she notes that stock valuations suggest markets are already anticipating this shift. The S&P 500 is trading at a high forward PE ratio, implying expectations of a significant drop in CPI by year-end. Given these factors, a moderate Fed policy shift may not significantly boost equities.

What recent change in the bond market is seen as a signal for potential shifts in monetary policy?

• The two-year Treasury yield crossing under the Fed funds rate

• The ten-year Treasury yield rising above the Fed funds rate

• The two-year Treasury yield rising above the inflation rate

• The Fed funds rate dropping below the inflation rate

Why might the signal from the two-year Treasury yield not be enough to boost stock prices?

• The S&P 500 is trading at a lower PE ratio

• The bond market is expecting higher inflation

• The Fed has announced a new tightening cycle

• Stocks are already priced for a significant drop in CPI

What does the current S&P 500 forward PE ratio suggest about market expectations?

• The market expects a rise in interest rates

• Equities are anticipating a significant drop in CPI

• Investors are preparing for a recession

• The Fed will continue its tightening cycle

At what level is the S&P 500 trading compared to expected forward earnings given the current CPI?

• Exactly 15 times forward earnings

• Below 15 times forward earnings

• Exactly 17 times forward earnings

• Above 17 times forward earnings

What is the anticipated CPI range by the end of the year according to market expectations?

• 4 to 6%

• 6 to 8%

• 2 to 4%

• 0 to 2%