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Dec. 3, 2021, 8:34 a.m. EST

‘The bond market is not yet prepared’ — here’s what a Wall Street veteran fears

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By Steve Goldstein

As the signals from the Federal Reserve become louder and louder that interest rates will be hiked next year, the question for markets becomes less about when and more about, how high.

Nearly every rate-hike cycle since the 1970s has resulted in successively lower peaks. That’s logical, because inflation also has had lower peaks.

“In essence, a secular decline in inflation has mitigated the need for monetary policy makers to lift official interest rates as much as previous business cycles,” said Joe LaVorgna, the chief economist of the Americas for Natixis Corporate and Investment Banking, who also was chief economist for the White House National Economic Council in the latter days of the Trump administration.

Markets have learned. Measured by five-year overnight index swaps, traders expect the next rate hike cycle to peak at just 1.45%. And adjusted for inflation, real rates are forecast not to get into positive territory in this business cycle.

LaVorgna said markets may be in store for a rude awakening. “But unprecedented fiscal and monetary stimulus since COVID may have reversed the post-1980s secular downtrend in inflation. If this is the case, then the real fed-funds rate eventually needs to get back into positive territory to dampen inflationary pressure,” he said.

LaVorgna said the bond market isn’t yet prepared. And to MarketWatch, he said neither is the stock market. The end result for equities? “Eventually a serious compression in multiples,” he said in an email. The last reading for the Shiller price-to-equty ratio was a staggering 39.

Related : Charlie Munger says the market is ‘crazier’ than late 1990s

The buzz

The U.S. created just 210,000 nonfarm jobs in November, a gain far below estimates in the half-million range. The unemployment rate meanwhile fell 0.4 points to 4.2%, a lower level than anticipated.

U.S. stock futures /zigman2/quotes/209948968/delayed ES00 -1.03% /zigman2/quotes/210219788/delayed NQ00 -1.56% were pointing to gains after the report, while the yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +3.77% slipped to 1.42%.

The Gauteng province of South Africa is expected to be declared to be in a fourth wave of coronavirus infections on Friday , as cases there have surged due to the omicron variant.

A late-night U.S. Senate vote prevented the government from shutting down.

Strategists at Citi moved their global equities stance to neutral and reduced their U.S. overweight stance by a notch, citing the more hawkish Fed and the omicron uncertainty. Strategists at Barclays set an S&P 500 /zigman2/quotes/210599714/realtime SPX -0.88% price target of 4,800 — about 5% above current levels — as they expect earnings growth to continue, but warn “persistent supply-chain woes, reversal of goods consumption to trend and China hard-landing are key tail risks.”

Chinese ride-hailing giant Didi Global said it’s going to delist from Intercontinental Exchange’s /zigman2/quotes/209108507/composite ICE -0.65% New York Stock Exchange, bowing to pressure from the Chinese government.

Electronic-signature company DocuSign /zigman2/quotes/205992027/composite DOCU -3.58% plunged 30% in after-hours trade, a s the company’s chief executive said the pandemic boom wore off .

Zillow /zigman2/quotes/204413973/composite Z -2.08% said it’s progressing quickly with the winding down of its home-buying operation, and will purchase $750 million of its own stock.

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Today’s tickers

As of 6 a.m. Eastern, here are today’s most popular tickers on MarketWatch.

Ticker Name
/zigman2/quotes/203558040/lastsale TSLA Tesla
/zigman2/quotes/200235402/composite AMC AMC Entertainment
/zigman2/quotes/203755179/composite GME GameStop
/zigman2/quotes/210598269/delayed DXY U.S. dollar index
/zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y U.S. 10 year Treasury note
/zigman2/quotes/210598065/realtime DJIA Dow Jones Industrial Average
/zigman2/quotes/204905836/composite NIO NIO
/zigman2/quotes/209948968/delayed ES00 E-mini S&P 500 futures contract
/zigman2/quotes/222950675/composite GRAB Grab Holdings
/zigman2/quotes/202934861/composite AAPL Apple

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/zigman2/quotes/209948968/delayed
US : U.S.: CME
$ 4,148.25
-43.25 -1.03%
Volume: 1.81M
Feb. 3, 2023 1:30p
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/zigman2/quotes/210219788/delayed
US : U.S.: CME
$ 12,646.25
-200.50 -1.56%
Volume: 688,728
Feb. 3, 2023 1:30p
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/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
3.53
+0.13 +3.77%
Volume: 0.00
Feb. 3, 2023 2:40p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,142.99
-36.77 -0.88%
Volume: 0.00
Feb. 3, 2023 2:40p
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/zigman2/quotes/209108507/composite
US : U.S.: NYSE
$ 107.63
-0.70 -0.65%
Volume: 1.07M
Feb. 3, 2023 2:39p
P/E Ratio
41.71
Dividend Yield
1.42%
Market Cap
$60.54 billion
Rev. per Employee
$1.03M
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/zigman2/quotes/205992027/composite
US : U.S.: Nasdaq
$ 65.40
-2.43 -3.58%
Volume: 2.70M
Feb. 3, 2023 2:40p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$13.64 billion
Rev. per Employee
$326,654
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/zigman2/quotes/204413973/composite
US : U.S.: Nasdaq
$ 46.17
-0.98 -2.08%
Volume: 1.68M
Feb. 3, 2023 2:40p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$11.15 billion
Rev. per Employee
$1.20M
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/zigman2/quotes/203558040/lastsale
US : U.S.: Nasdaq
$ 191.54
+3.27 +1.74%
Volume: 190.88M
Feb. 3, 2023 2:40p
P/E Ratio
52.58
Dividend Yield
N/A
Market Cap
$595.71 billion
Rev. per Employee
$637,144
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/zigman2/quotes/200235402/composite
US : U.S.: NYSE
$ 6.28
+0.20 +3.26%
Volume: 39.94M
Feb. 3, 2023 2:40p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$3.17 billion
Rev. per Employee
$131,169
loading...
/zigman2/quotes/203755179/composite
US : U.S.: NYSE
$ 22.21
-0.49 -2.16%
Volume: 3.80M
Feb. 3, 2023 2:40p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$6.91 billion
Rev. per Employee
$496,225
loading...
/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
102.90
+1.15 +1.13%
Volume: 0.00
Feb. 3, 2023 2:30p
loading...
/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
3.53
+0.13 +3.77%
Volume: 0.00
Feb. 3, 2023 2:40p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
33,928.42
-125.52 -0.37%
Volume: 0.00
Feb. 3, 2023 2:40p
loading...
/zigman2/quotes/204905836/composite
US : U.S.: NYSE
$ 11.29
-0.67 -5.60%
Volume: 44.20M
Feb. 3, 2023 2:40p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$19.70 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/209948968/delayed
US : U.S.: CME
$ 4,148.25
-43.25 -1.03%
Volume: 1.81M
Feb. 3, 2023 1:30p
loading...
/zigman2/quotes/222950675/composite
US : U.S.: Nasdaq
$ 3.58
-0.05 -1.38%
Volume: 13.37M
Feb. 3, 2023 2:40p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$13.98 billion
Rev. per Employee
$119,199
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 155.55
+4.73 +3.14%
Volume: 118.21M
Feb. 3, 2023 2:40p
P/E Ratio
26.33
Dividend Yield
0.59%
Market Cap
$2388.42 billion
Rev. per Employee
$2.40M
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