The Weekly Edge

Despite the pleas and pricing for swift action to resolve being behind the curve, it’s now more likely the Fed will move with “Slow Hands” as it begins to ease policy in September.

After a weak of equity and bond markets being whipsawed by positioning, economic narratives, and Fed expectations, it is helpful to take a step back, “cut through the noise” (as Bloomberg’s Tom Keene would say) and focus on the fundamentals.

Investors were reminded of a valuable lesson this week: falling interest rates can be good for risk assets but only up to a point and only for the right reasons.

U.S. politics has been delivering more twists and turns lately than even the most melodramatic arc on The West Wing. And yet, diversified investors have come through the chaotic headlines mostly intact.

Harry Truman once asked to be sent a one-armed economist, frustrated with the profession’s propensity to condition every assessment with “on the one hand this… while on the other hand that…”.

While equity investors have not yet seen downward GDP revisions as a reason to turn cautious (likely because they also brighten hopes for rate cuts), corporate credit spreads are now several months removed from their 2-year lows. We are becoming concerned that High Yield credit, in particular, may be on the “Highway to the Danger Zone”.

For the first time in over twelve months, U.S. GDP forecasts for 2024 have been trimmed, and with these cuts the “new dawn” has faded for continued growth acceleration in the U.S.

We continue our unofficial summer series looking at the “left behind” portions of the global equity market (we began with a look at small caps and then international stocks) with a look at Value and its dismal relative performance versus the S&P 500 and Growth stocks.

John Mayer’s “Waiting on the World to Change” is an apt soundtrack for international investors who have experienced a decade and a half of underperformance versus the U.S. markets and are waiting for signs of a turn in performance.

There may be only one duo that is more at odds than 1977 Stevie Nicks and Lindsay Buckingham, and that is the Payroll and Household Surveys for employment in the U.S.

Like the quarrelsome rock n’ roll couple, these two measures of U.S. labor data “went their own way” in the jobs reading for May.