2-year Treasury climbs to new high: ‘S&P 500 will undercut its June low’

Yield on the 2-year Treasury climbed to a new fifteen year high of 4.351% on Monday – days after the FOMC signalled a terminal rate of 4.6% in 2023 as we published here.

Other aggregates are below their June low

Both bond yield and “other aggregates”, as per Carter Worth – the Chief Executive of Worth Charting, suggest the S&P 500 index has not bottomed yet. On CNBC’s “Squawk Box”, he said:

Semiconductor index is below its June low. The KBW Bank Index is below. Dow Jones Transportation Average is below. Dow Jones Industrials is below. So, the S&P itself will in fact undercut its June low.

Last week, the U.S. Fed announced its third consecutive 75-bps increase in interest rates and said the probability of a “soft landing” was rather slim. Consequently, the benchmark index pared back almost all of its gain over the past three months.

S&P 500 has downside to 3,400 level

Another indicator he’s using is the MSCI All Country World Index (ACWI) that’s now back to its pre-pandemic level. Explaining what it says about the extent to which the broader market could tumble from here, Worth said:

ACWI has given back all of its gains associated with the COVID recovery. Were the S&P simply to do that, we have an 8.0% drawdown from here. That will take us to 3,400. I think that’s a reasonable price objective.

He’s convinced the S&P 500 is yet to reflect a more than 20% decline in Copper since June and an even steeper 33% hit to oil.

Nonetheless, Worth is all for buying Apple shares that are still holding the psychologically meaningful $150 level.

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