IEI ETF

Core inflation remains high, and if oil prices don't stay down, the headline and core readings should converge. With growth not a concern yet given the data, the Fed has less reason to cut rates, despite the comments of committee members. It doesn't help that there is upside for oil due to supply risks related to Iran-Israel escalation risks. This could reverse some of the CPI cooling we've seen precluding rates.

The market is re-pricing timing and number of rate cuts in 2024 due to higher-than-expected inflation. The market initially priced in rate cuts for early 2024, but stronger economic data and continued inflation concerns have shifted expectations. IEI provides exposure to the intermediate portion of the yield curve, tracking U.S. Treasury bonds with maturities between three and seven years. It offers liquidity and helps with portfolio construction.

IEI has seen a recovery in price due to expectations of rate cuts by the Fed. Concerns remain about inflation, which is still above policy levels, and the Fed may keep rates higher for longer as financial conditions are still loose. The optimism in markets may be met with the realization that inflationary factors will keep inflation higher than the target, and we believe disappointments are coming.

This rally is different. Stocks are rallying this time as credit spreads are widening.

September saw declines in the S&P 500, Nasdaq 100, and small caps, as well as a decline in foreign stocks. The US Dollar ETF rallied, long-term Treasury yields rose, and oil prices increased, posing a triple threat to the bull market. Q3 GDP growth in the U.S. remains strong, but concerns arise as Q3 S&P 500 earnings are expected to be flat.

The iShares 20+ Year Treasury Bond ETF TLT, which has lost 7.8% this month through Tuesday on a total return basis, attracted $357 million from investors on Tuesday, according to FactSet data. That was its biggest daily inflow since Sept.