Macro Thesis

First, Crude Oil rose suddenly, reaching close to $100 after strikes in the Middle East. This spike will push up energy prices and therefore inflation, which will be reflected in October's CPI numbers, so keep that in mind.

The market is currently pricing in a rate hike at the next Fed meeting due to rising inflation and a warm economy (4.1% unemployment, solid job growth). At the same time, 10Y bond yield sits currently at 4.96%, the highest it's been since the 2008 financial crisis. These factors combined with the fact that the US has an increasingly concerning debt issue, creates circumstances for a serious drop in equity, if the situation is not managed correctly by the Fed.

Despite the 10Y bond yield rapidly increasing, stocks and equity kept unanimously rising for a few days, which is counterintuitive. However this is due to the fact that the market is expecting equities (mostly AI-driven) to significantly outperform bond returns, while caution surrounding US deficit and inflation makes the bonds drop in value, increasing the maturity yield.

Considering the rate hike, there are currently 2 possible outcomes after the meeting: Market relief (The market believes the Fed will manage to control inflation while not disturbing economic growth. This will cause a relief in the market, which will lead to rising equity and the 10Y bond yield will stop climbing so aggressively) or Market panic (The market loses faith in the Fed's ability to control inflation without damaging economic growth. Equities will likely drop significantly and the bond yield will keep climbing at a faster pace).

The uncertainty on the Fed is clearly visible among investors and institutions, with the VIX jumping 22% to 17 points in 3 days, and options market pricing in higher demand for downside protection for short-term maturities (8-16 days SPY IV).