While VIX’s 31% collapse in the past week… …has, as expected, fueled an impressive rebound……we shouldn’t forget about the 2s10s. The 10Y retreated from our upside target on cue. But, the 2Y has been gradually rolling over.

As long as the 2s10s inversion persists, the year end rally should be safe. But, history shows us that when it unwinds things can get ugly in a hurry.

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PCE (+0.4%) came in slightly higher than consensus (+0.3%.)  Core PCE was in line with expectations at +0.3% MoM and 3.7% YoY. Personal spending (+0.7%), however, was well above consensus (0.5%, 0.4% prior) and personal income (0.3%.)

In other words, spending increased faster than income. As discussed yesterday, this speaks to a slowing nominal inflation rate in the face of already high prices that are pinching those whose savings are depleted.

Yesterday, ES nailed our 4153 target from July……and has since bounced modestly on the PCE data and AMZN‘s earnings.

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GDP grew at a rapid 4.9% annualized clip last quarter, far outpacing most estimates and prompting a bounce in futures from overnight lows (after ES reached the top of the range for our next lower target.)

However, it merely complicates the Fed’s inflation fighting efforts.

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