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.

This week we are providing our assessment of the U.S. small and mid-cap equity market, a universe of nearly 2,500 listed companies that are generally classified as having market capitalizations from $50M to $30B and have traditionally represented about 20% of the total U.S. equity market cap.

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.