Why this might have been another false start for the S&P 500

Although the 10-year Treasury yield has already dropped by roughly 60bp since the release of October’s CPI report on 10th November, we still see scope for it to end 2023 a bit lower than its current level of less than 3.6%. This largely reflects our forecast for the US policy rate in coming years compared to what is now discounted in the markets. We are less convinced, though, that the recent rally in the S&P 500 will resume in the coming months, given the prospect of a mild recession in 2023.