Impending Rate Hikes Threaten Overvalued Stocks

The US core CPI rose to 5.3%, surpassing expectations, creating a problem for the Fed, which is likely to show more rate hikes in 2023 and a higher inflation outlook. This comes at a time when liquidity is being withdrawn from the market and stocks are dangerously overvalued. The Nasdaq 100 earnings yield is 235 bps below the historical average of the last 10 years, and liquidity is now starting to be withdrawn from the Nasdaq 100 futures market, leaving stocks particularly vulnerable as the equity risk premium gets dangerously narrow.