Mr Top Step - The Opening Print

Mr Top Step - The Opening Print

Share this post

Mr Top Step - The Opening Print
Mr Top Step - The Opening Print
Interest Rate Expectations Continue to Rise

Interest Rate Expectations Continue to Rise

Trading the S&P, Bonds and NVDA.

Mr Top Step's avatar
Mr Top Step
Feb 28, 2023
∙ Paid

Share this post

Mr Top Step - The Opening Print
Mr Top Step - The Opening Print
Interest Rate Expectations Continue to Rise
Share

Follow @MrTopStep and @BretKenwell on Twitter and please share if you find our work valuable.


Our View

Interest rates are on the rise. Or at least, that’s the expectation. To quickly recap the last four weeks, the January jobs report came in stunningly hot (more than double economists’ expectations). Then the CPI, PPI and PCE reports all came in hot. 

In other words, inflation is not dying down the way the Fed had hoped. 

At the start of the year, the assumption was that the Fed would do two 25 basis point hikes, pause, and then cut rates by year-end. 

That’s no longer the case. 

December expectations for Federal target rate

By June, the Fed Funds Futures market is pricing in 75 basis points worth of increases from today’s levels (to a range of 5% to 5.25%). A month ago, that expectation stood at just 3.7%. Now it’s the base case. 

By year-end, the market expects rates to be unchanged from the June levels. 

In other words, hike into the summer and then no rate cut. A month ago, expectations for this scenario stood at just 0.3%. Expectations also called for rates at year-end to be at the same level that they are today (at 4.5% to 4.75%). 

“Higher for longer” may not pan out. I think it will, because inflation is proving to be quite stubborn and the US consumer continues to spend rather freely. If it does pan out and the Fed is forced to go higher than the market previously thought and hold there for longer, then that’s a notable market headwind. 

Our Lean

Yesterday, Our Lean was to fade the early strength, with a keen eye on 4020 to 4030. Monday’s high for the ES? 4024.75. Remember the old bear-market rule of, “markets tend to rally early in the week.” That’s why we said yesterday that we are “a little leary as to chasing such a big move [rally].”

In any regard, it’s the last day of February, so you can expect some big MIM flow on the close. According to my friend Jeff Hirsch at Stock Trader’s Almanac, the last day of February doesn’t tend to be very good. Specifically: 

This post is for paid subscribers

Already a paid subscriber? Sign in
© 2025 Mr Top Step
Privacy ∙ Terms ∙ Collection notice
Start writingGet the app
Substack is the home for great culture

Share