Speed of Monday's bond yield move is a 'big deal': Fmr. Bridgewater Strategist Rebecca Patterson

So how vulnerable are stocks for more downside here, Tim, what do you say? Well, what’s interesting to me is we came in this morning and equity futures last night. I’m sure most people are glued to their screens after the weekend’s events and and we’re seeing a rally and we’re seeing a rally also would possibly move higher in rates and that was really how we started out this morning and I recognize that markets price in a lot. We priced a lot in Friday afternoon going into this weekend on the expectation of unfortunately what happened happening. Having said that it was a week where we sold off on the back of yields. I mean it was a week where we sold off on the back of a handful of things. But when when you started to see the day play through and there was no flight to quality in bonds which should have meant Treasury should have been rallying the dollar should have been rallying. The dollar actually at one point was actually off small. But the fact that some of the trades that I would have expected to have seen this morning hadn’t taken place I just found is weird even though I know we were in a place where Friday afternoon risk was significantly high. Look, the VIX is closed through the levels on Friday. I think we are in a kind of a new range here. The S&P closed effectively on the lows after 120 point reversal intraday to close through the 50 to the downside and it hasn’t made a move to the downside through the 50 since September of 23. So I think we’re in an environment where not only have we had a 4% move already in the S&P from peak to through, but I think the unfortunately we’ve crossed a Rubicon over the weekend. We haven’t been here before with Iran, Israel. I think there are all kinds of implications and I think they’re some of them are even going to, we’re going to kind of contemplate that tonight, meaning Iran has never attacked Israel before as opposed directly as opposed to through surrogates. And that’s that’s the Rubicon that we have crossed over the weekend. That’s Rubicon we’ve crossed. And I think there’s left tail, left side tail risks galore. Yeah. And and I would just add to that and I agree with you, I mean we have geopolitical risks in multiple places around the world and you would think that that would lead to a flight to quality which would pull yields lower. But we have other forces going on right now, the retail sales report, very, very strong, stronger growth risks of higher oil prices from the Middle East creating inflation expectation risk that could keep short term rates higher for long. All of that’s feeding into the long end of the curve. I think the big deal though today is the speed of the move. Now if you have a very slow rise in yields and it’s backed by stronger growth, you can see higher yields and higher stocks. At the same time, when you have a fast rise in yields, it’s unsettling. You have greater uncertainty, greater Vol and it’s not necessarily coming just from better growth. I think that’s when that tips the balance, the correlation the other way. So I think all of that I totally agree with, but I also think this market was on such a tear that at some point you need an excuse to start selling things off. So we’re just sort of at the beginning of earnings season. I think if things calm down that’s a giant if and we get back to focusing on earnings that could be good for the market. But it wouldn’t surprise me to just continuously down for a while as you’re this moving rates is really quite something. I don’t know how much to attribute to the retail number, which was super strong. Also the revisions to the prior months are more cute. They’re seen as more important too. Yeah. And why, why are they so off? I don’t quite get that. So that’s kind of, you know you as you were saying, you could have rising rates and the economy doing OK and the market sort of doing OK there. But this retail number seemed to actually be a negative, right, just for for what it did to rate it. It decelerated a lot. I mean I’ll just say this, you just said, Karen, you know you want to focus on earnings and again I go back to Friday and JP Morgan down 6 1/2 percent, I can’t remember the last time I’ve seen that stock down more than 5% in a non crisis sort of period. So what does that say? It’s a very crowded trade. We’ve been talking about a lot of very crowded trades. They became very big market cap stocks. So this was a half a trillion dollar market cap that was down 6% on on a technical basis, book trends. And and let me tell you, there’s a lot of stocks, a lot of sectors, a lot of indices that are breaking these really very nice 45° uptrends that have been placed since October. So some of the technicals are starting to breakdown. And I just feel like once we get into earnings, I think expectations for so many stocks, we’re only down 4% in the SP from those all time highs just made two weeks ago. I think expectations are high. What the geopolitics situation does to me, it muddies the, the outlook, right. And so if JP Morgan sold off because the CEO, the best CEO on the planet, right, was giving this sort of guidance that investors were not going to feel great about, he was already telegraphing that earlier in the week with his investor letter. Then I think there’s more big downdraft for some single names that are very crowded to come. And and and again, they could have put up a really good Q1, but it really might be about just the lack of visibility they have in the future. And then if you just think about this, OK, we have high expectations for earnings growth for the S&P 500 Eleven 12%. If you have the dollar where it is, you have rates where they are, you have commodities where there are, I mean, this is going to start to put some pressure on margins, right? And that’s going to put downward pressure on earnings, you know. So I think we’re going to have downward earnings revisions and they’re going to come out of this. And so again the S&P just seems a bit mispriced, you know in and around 5100 or so. The last time we are 4.6 in the 10 year the S&P was 4600.