As U.S. large cap indices “crossed the frame” of prior highs to trade near or to new all-time-highs, it is helpful to take an assessment of the tailwinds and headwinds for equity returns from this point (instead of “casting quarters into wells that hold our dreams”).
Much like a weepy country song at a karaoke party, PMIs are souring the mood, calling into question the cyclical recovery in the U.S. and challenging the ever-higher growth narrative that is fueling markets. We think growth forecasts and markets should be singing “Need You Now”, pleading with PMIs to confirm the dominant resilient-growth narrative.
We think that growth forecasts continue to be “so much more than everything” to risk asset performance, with stable and rising forecasts as the key underpinning of recent risk asset strength.
An aging economic cycle and equity markets that are facing renewed headwinds make Bob Seger’s 1980 classic a fitting analogy for this week’s Weekly Edge, where we are taking stock of the current U.S. equity earnings season.
Expectations for a Fed pivot to rate cuts in 2024 have been “undone” by stickier inflation readings and resilient economic growth statistics, resulting in an “unraveling” of market trades that expected to benefit from a friendlier Fed.
An economy that grows robustly inevitably slows down. In today’s US economy, there are signs of continued strength, such as strong headline jobs data, but also a few signs of weaknesses, such as in consumer credit delinquencies and commercial real estate that have not caused a downturn.
This week we shared our outlook for the economy and markets in the second quarter of 2023. For much, much more detail, please download the slide deck for our complete analysis of the second quarter macro and market environment.
As Federal Reserve Chairman Jerome Powell hosted the post-Federal Open Market Committee meeting press conference this week, he probably should have ditched the suit and worn a black t-shirt and ripped jeans instead, because he seemed to send one Wayne Campbell-like message to markets: “party on!”.
Inflation is lingering around, meaning U.S. economic data continues to support our view that there is little urgency for the Fed to ease policy as swiftly and aggressively as bond markets have been pricing in.
The first and most important point in this analysis is: just because forward returns could be lower in the future does not mean investors should stay out of the equity market. Instead, a period of lower price returns demands greater care by investors in order to reach return goals.