Speaking of the money supply, its growth has flatlined over the last 3 months, the first time we’ve seen that happen in over a decade. With the Fed just starting its balance sheet reduction, this trend should continue in the coming months.
At the same time, the Fed is expected to continue hiking rates throughout the remainder of the year (market-based expectations according to Fed Funds Futures):
-July: 75 bps increase to 2.25%-2.50%
-September: 50 bps increase to 2.75%-3.00%
-November: 25 bps increase to 3.00%-3.25%
-December: 25 bps increase to 3.25%-3.50%.
The end of the easy money era has led to a rapid repricing of risk across all markets, but is perhaps most notable in the mortgage market. After hitting an all-time low of 2.37% just 6 months ago, Adjustable Rate Mortgages in the US are now at 4.50%, their highest level since 2009.
The S&P 500 ended the first half the year down 20.6%, the worst start to a year since 1962. What will happen in the back half? If history is a guide, continued volatility should be expected. As for the direction, anything is possible…
