This week’s Weekly Edge looks at the week’s strong semiconductor earnings and details a nascent recovery in broader cyclical activity. This cyclical reacceleration is an important watch item, as it could change the Fed’s path for expected rate cuts, while also impacting equity and bond markets in various ways.
We note that in the past 35 years, the Fed has never begun cutting rates when Manufacturing PMIs were rebounding/reaccelerating. Though this continues to be a “Strange Landing” cycle, we are doubtful that the Fed will move to ease policy in a meaningful way if this cyclical recovery continues.

Like the myth of the “Ramblin’ Man”, whose rough-and-tumble, on-the-road lifestyle was described by the Allman Brothers Band in 1973, most S&P 500 companies and management teams continue to search for the good times while navigating a bumpy road and challenging environment for profit growth.

This week, Minneapolis Fed President Neel Kashkari published an essay titled “Policy Has Tightened a Lot. How Tight Is It?”, but we think a great alternative title would be “We Didn’t Stop the Fire”, the inflation fire that is.

For much of the past two years, the bond market has been expecting a much easier policy path than what the Fed has signaled and executed. Time and time again, the bond market has front run the Fed, expecting a shift to easier policy, but the Fed has not delivered.