Bloomberg TV recently turned to Axonic Capital Director of Research Peter Cecchini for insight on the widening cracks in big tech amid earnings. When asked to answer his own question of “[i]n the first three weeks of January, equity markets have already rallied, how much more delusional can they become?” Cecchini says that it’s one of the hardest questions to answer. He explains that there is a massive disconnect between bond markets and equity markets, creating a deeply inverted yield curve, which is not emblematic of a dovish pivot but rather emblematic of a recessionary environment.
Cecchini discusses the repricing of risky assets that occurred last year due to the sudden change in interest rates. He explains that we are currently experiencing a peculiar and uncomfortable phase where market participants are adjusting to the effects of the new rate system. They are also shifting their focus towards the real economy and earnings as the primary drivers for lower stock prices and high-yield corporate bonds this year. However, it is important to recognize that this transition will require a considerable amount of time to fully unfold.
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