The Nasdaq index has experienced a significant decline this month, prompting the question of whether buy-dip flows will arrive soon. However, this is unlikely, as rising bond yields have yet to reverse the trend. Market watchers have been discussing a no-landing scenario, where the economy remains hot despite high-interest rates, but traders prefer a moderate environment.

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A no-landing outcome may only delay a hard landing, causing long-term yields to rise, along with short-term yields and equities to be under intense pressure. At the beginning of the year, risk assets rallied on the possibility of the Fed pulling off an "immaculate disinflation," where interest rate hikes reduce inflation without pushing the economy into a severe recession.

However, recent economic data has made these projections unrealistic, and the Fed is likely to release new projections in March that will be very different. While the Fed may pause in the next few months, we could see inflation closer to 4% than 2% and unemployment closer to 3% than 5% by the end of 2023, even without a recession.

The Fed's tightening should end in June, and rates should remain unchanged for the rest of 2023. The Fed is committed to a policy of a few more hikes followed by a long pause. However, if labor market tightness does not ease and inflation does not fall significantly, the Fed will be forced into another round of rate increases. This will lead to a harder landing in 2024 and beyond, resulting in higher rates across the curve and lower equity valuations.

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