Pundits will say whatever pundits say, but the market thinks the Fed’s behind the curve.

As readers have doubtlessly surmised by now, I agree with the market on that point.

That’s not (necessarily) to say I support a 50bps cut this month as the best course of action. I mean, I do support that. But I can make the argument against it more convincingly than the people who don’t support it. That’s the thing you have to remember when you read me: There’s virtually no argument I can’t make better than someone else, which is how I was able to thrive, however briefly, in positions that required me to pretend I believed things I didn’t believe.

Anyway, the figures below are familiar, but they’re worth highlighting again. Just ask Mike Wilson, who rolled them out in his latest, published Monday (click to enlarge, as always).

Long story short, twos aren’t just shouting at the Fed anymore, they’re shrieking.

FF2s is the most inverted basically ever, and if you ask Wilson, that has to resolve (or at least abate through a narrowing of the spread shown on the right) before equities can regain their footing on a sustainable basis.

“[U]ntil the bond market starts to believe the Fed is no longer behind the curve, growth data reverses course and improves materially or additional policy stimulus is introduced, it will be difficult for equity markets to trade with a more risk-on tone, in our view,” he wrote. “This means valuations are likely to remain challenged for the overall index while the leadership remains more defensive.”