$SPX 1M Inverted, $FEDFUNDS/$US10Y Overlay

SP:SPX   S&P 500 Index
Market curve turned decidedly parabolic after FED interest rate peak around 1981.

The parabolic growth of the S&P500 Index and broader stock market over the past 28 years appears to correlate with progressively declining interest rates.

Every major reversal (rate increase) in the rate decline has been followed by a stall or decline in the value of $SPX .

The most recent reversal in rate decline has a few unique characteristics which are unprecedented:

1. It is far less steep than all previous rate increases.

2. It is a reversal from the LOWEST and LONGEST rate plateau in history.

3. If the last rate decline had followed form to the others, it would have dropped to -0.44%, already reversed, and resumed decline on the way to -1.98%. Central bankers avoided targeting negative rates, but at the cost of having to hold the rate just above ZERO for far longer.

4. It's a matter of scale/perspective of course, but $SPX and $FEDFUNDS have now crossed with greater divergence than has been seen in almost 30 years.

Note also the decline in $VIX and in $SPX volume in recent weeks.

I predict the next market reversal to be far more violent than 2008. I predict that it will trigger in the next 6-12 months unless the FED lowers interest rates significantly.

If the correlation between $FEDFUNDS and $SPX is a causal relationship, then the FED is stuck between targeting negative interest rates indefinitely and accepting the start of a deep recession lasting not less than 12+ years.

I am NOT advocating for negative, or even lower interest rates.

I would instead call for a return to sound money.

Buy bitcoin .
Comment: A descending resistance trendline can be drawn over $FEDFUNDS suggesting a descending upper bound to the interest rate that the economy will tolerate:

It would be interesting to compare this to debt:GDP ratio.

Of note is that the most recent progression of rate increases has decidedly broken this trendline.
Comment: So, that trendline that I drew was plotted against $FEDFUNDS, not $SPX, but what happens if we re-vert $SPX, leave the trendline, and drop a fib-channel from it?

It's probably nothing....
+1 Reply
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