Peak CPI, 75bp hike, and the beginning of recession pricing

June 2022 was a pivotal month in the 2022-2023 tightening cycle. May CPI printed 8.6% YoY on June 10, the hottest since 1981. The Fed responded June 15 with a 75 bp hike, the largest since 1994. Terminal rate expectations jumped from 3% to above 4% over the month. The 10Y Treasury yield reached 3.50% before reversing as recession pricing began to dominate.

Equities experienced a bear market rally early in the month then resumed declines. The S&P 500 fell 8.4% on the month, one of the worst Junes since 2008. The Nasdaq 100 fell 9.0%. Regional banks fell 11%. Only commodities and the dollar gained materially. The yield curve (10Y-2Y) flattened from +30 bps to -5 bps, its first inversion of the cycle, signaling that recession pricing had taken hold even as the Fed continued hiking.

June 2022 established the 2022 regime: inflation shocks forcing Fed urgency, bond and equity selling together, dollar strength as global destination currency, and cross-asset correlations converging to one during stress episodes. The unusual pattern of 60/40 portfolios losing 15%+ YTD by end of June had not been seen since 1974. June marked the end of "transitory" narratives and the full pricing of a multi-year hiking cycle.