It’s too early to declare a Goldilocks environment, even if the major asset classes at least hint at a better chance for it. S&P 500 SPX
gained 5% this year and the tech-heavy Nasdaq Composite COMP
It’s up 8% despite the fact that layoff announcements appear daily. Watch the flow of economic data on Thursday.
Veteran Wall Street strategist Joe Lavorgna is certainly anticipating a downturn in the camp.
“The key indicators we are watching are the leading economic indicators index, housing starts and the recession burning like the Treasury yield curve. Those indicators have changed as the economy is still absorbing interest rate hikes and the shrinking balance sheet,” said Lavorgna, now chief economist at SMBC Nikko Securities America and former chief economist at the White House National Economic Council.
But Lavorgna allowed for the possibility that the economy would recover from the recession. And crunching the numbers, he found an impressive historical record. For each period in which the Fed initially cut interest rates and averted a recession, the S&P 500 was higher three, six and 12 months later.
The best period was after the Russian debt default/LTMC crisis in July 1998 – stocks rose about 26% in the 12 months after the Fed cut that September. As you can see from the graph, after the declines, the market rose by double digits on average.
“However, for the stock market to achieve such impressive results, the economy must avoid a severe downturn. Otherwise, the odds favor lower prices over the coming months. Given this binary situation – recession or no recession – it is understandable why market participants pay so much attention to macroeconomic data,” he said.
Dhaval Joshi, chief strategist at BCA Research’s Counterpoint, said the challenge for investors is knowing whether the economy is in recession because gross domestic product is released many weeks after the midpoint of the quarter.
Instead, he likes to use US retail sales broken down by average hourly earnings as a proxy for corporate profits. When the ratio falls from its peak of 3.5%, the unemployment rate continues to rise by at least 0.6% – and once the unemployment rate rises by at least 0.6%, it never eventually rises above 2%. 75 years.
This rate is getting pretty close to the point of no return – just under 3% from the peak.
He added that the resilience of the job market so far makes sense as companies wait for the decline in profits to start cutting jobs. In an industry where profits are falling, technology, they are indeed laying off workers.
Joshi advises to remain defensive over a 6-12 month horizon, with overweight stocks, healthcare vs. tech, gold vs. oil, and the Japanese yen vs. the euro. And he said February 15 would be a crucial date – when the next retail sales report comes out.
US stock futures ES00
they were pointing to a stronger start. The yield on the 10-year Treasury note: TMUBMUSD10Y
It was 3.51%. Oil CL
was trading at just over $81 a barrel.
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A big day for economic data saw GDP rise 2.9% in the fourth quarter, a touch more than forecast, while durable goods orders rose 5.6% in December. Weekly unemployment applications fell to 186,000.
New home sales data will be released after the open.
Shares rose after the electric carmaker reported stronger-than-expected earnings as CEO Elon Musk said Cybertruck production would begin this year.
the chemical company said it would cut 2,000 jobs as it reported lower-than-forecast earnings.
shares fell after the tech giant missed its cash flow target and said it would cut 3,900 jobs. German database manufacturer SAP SAP
He said he was cutting 3,000 jobs.
He announced that he will buy back 75 billion dollars worth of shares.
Meta Platforms META
says it will end former President Donald Trump’s suspension in the coming weeks.
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