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Are we talking ourselves into a recession?
Economic models from Goldman Sachs and JPMorgan Chase show that higher odds of an economic downturn have risen materially, judging by signals in the U.S. bond market and to a lesser extent the performance of stocks that are acutely sensitive to the ebbs and flows of the business cycle.
S&P 493 stocks show profit growth for first time in five quarters
Profit growth at the Magnificent 7–Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia-—still raced ahead of the rest of the S&P 500 in the second quarter, But for the first time in five quarters, the rest of the S&P 500–the S&P 493 if you will–showed positive year-over-year growth in profits.
Saturday Night Quarterback says (on a Sunday), For the week ahead expect…
Expect a final inflation test before the Federal Reserve meets on September 18. Unless there’s a huge surprise in the Wednesday, August 14, CPI report, the Fed will cut interest rates for the first time at that meeting.
Initial claims fall raising possibility that July job weakness was just a blip and not a signal of a recession
The number of Americans filing initial claims for unemployment benefits fell more than expected last week. Initial claims fell 17,000 to a seasonally adjusted 233,000 for the week ended August 3, the Labor Department said today, August 8. That was the largest drop in 11 months. Economists polled by Reuters had forecast 240,000 claims for the latest week. The data calmed fears on an impending recession raised by last Friday’s unexpectedly weak jobs report for July.
China exports slowed in July–not a good sign for global growth
I’d worry less about the U.S. slipping into recession if the rest of the global economy wasn’t so challenged on growth. For the first quarter of 2024, the annual growth rate in the European Unpin was just 0.6%, for example. And now we have data out of China showing that export growth unexpectedly slowed in July. That signals cooling global demand at a moment when China needs export growth to make up for a sluggish domestic economy. Exports rose 7% in July in dollar terms from a year earlier, falling short of economists’ median forecast of a 9.5% gain.
Next big volatility day? Looks like tomorrow, Thursday
The options market is implying the S&P 500 Index will move 1.2% in either direction that morning on the report on U.S. initial and continuing claims for unemployment.
A 50 basis point interest rate cut from the Fed in September? I don’t think so
Briefly on Monday’s scary stock market volatility, traders and investors decided that the Federal Reserve would make its first interest rate cut at its September 18 meeting not a “business-as-usual” 25 basis points but a “market emergency” 50 basis points. On the CME FedWatch tool the odds of a 50 basis point cut jumped to 85% from just 13.2% on July 30
Japan taketh away and Japan giveth–today’s rally in Tokyo wipes out most of yesterday’s loss
Today, Tuesday August 6, the Nikkei 225 index closed up 10.23% in Tokyo. That erased most of Mondyay’s 12% loss. And it led to the U.S. futures market opening higher and U.S. stock indexes moving up today. At the close in New York, the Standard & Poor’s 500 was ahead by 1.03%, and the Dow Jones Industrial Average was higher by 0.76%. The NASDAQ Composite had gained 1.03% and the small cap Russell 2000 had added 1.23%.The volatility eertainly isn’t over but today the market is following the usual patterns–with buying on the drop emerging after a big sell off–and that’s a big relief after the panic-inducing movement of the last three sessions. Those on Wall Street trying to figure out where we are in the unwinding of the yen/dollar carry trade that has lent so much intensity of the drop ay that the selling of dollar assets to buy ten isn’t over. Which makes sense.
Could the stock correction be all about Japan? And close to an end?
Okay, the correction in the NASDAQ and the near correction in the Standard & Poor’s 500 isn’t all about Japan. U.S. stock valuations are stretched. Air is coming out of the AI bubble. The U.S. economy is slowing But to me those factors don’t explain the stunning rapidity of this drop. Nor why the biggest damage to any global market is taking place in Tokyo. To me this event has all the hallmarks of a move that has more to do with the unwinding of massive speculative trades than with anything we might label “fundamentals” or “macro economics.”Edward Yardeni, president of Yardeni Research and one of the smartest long-time observers of the financial markets I follow, points his finger at Japan and the surprise interest rate increase from the Bank of Japan that has led to a rapid unwinding of the speculative dollar/yen carry trade.
Saturday Night Quarterback says (on aMonday morning), for the weeks ahead expect…
Yeah, I know you can read a calendar, but take a moment to think about how the extraordinary August economic news vacuum feeds into the current market plunge. No Federal Reserve meeting in August so no interest rate cut until September 18. Which also means no new economic projections from the Fed on GDP growth or the likelihood of recession. No Fed Speak at all, really, with reassurance that the economy is slowing but not headed for recession, until the August 22-24 central bank gab fest in Jackson Hole. No significant earnings news–big enough to affect sentiment at least–until Nvidia’s (NVDA) earnings on August 28.
Weak July jobs report, tick up in unemployment rate send stocks tumbling on recession fears
The U.S.economy added only 114,000 jobs in July. Economists surveyed by Bloomberg had projected an increase of 175,000 jobs in the month. The unemployment rate unexpectedly climbed by 0.2 percentage points to 4.3% in July, exceeding all 69 estimates by economists. Average hourly earnings rose 0.2% on a monthly basis, also less than forecast, and on an annual rate increased by 3.6%–the least since May 2021. The jump in the unemployment rate triggered the Sahm Rule. Coined by former Federal Reserve economist Claudia Sahm, the rule says that when the average jobless rate over three months is 0.5 percentage point above the 12-month low, a recession is coming. And that’s exactly where we are now. “We’re not headed in a good direction,” Sahm said on Bloomberg Radio Friday. It’s fair to say the stocks weren’t happy on Friday.
Stock indexes fall hard on data saying U.S. manufacturing contracted in July
The latest report on the ISM manufacturing index came in at 46.8 for July, lower than expected and down 1.7 points from the 48.5 recorded in June. (In this index ny reading below 50 indicates contraction in the sector.) That sign of contraction fueled fears that the Federal Reserve may have waited too long to cut interest rates–a rate cut seems to be in the cards for the central bank’s September meeting–and that the U.S. economy is in danger of slipping into recession. The stock market tumbled Thursday. The Dow Jones Industrial Average fell almost 500 points, or about 1.2%. The S&P 500 dropped about 75 points, or almost 1.4%, while the tech-heavy Nasdaq composite index was down more than 400 points, or about 2.3%. Money flowed into bonds: The 10-year Treasury yield fell below 4% for the first time since February.
September it is: today Fed signals September interest rate cut
At today’s meeting the Federal Reserve left its benchmark interest rate unchanged at 5.25% to 5.50%. Fed Chair Jerome Powell said an interest-rate cut could come as soon as September. “The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market,” Powell told reporters Wednesday. “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”
McDonald’s sales drop for first time in four years–this is what a McDonald’s economy looks like
I’ve started to call this The McDonald’s Economy–where the long-term effects of high inflation on prices damps consumer purchasing, but where the recent drop in inflation has limited companies’ “cover” for price increases. The result is that companies are seeing lower sales volumes at the same time as consumers push back ore strongly against price increases. McDonald’s isn’t the only company caught in this vise. Customer traffic at U.S. fast-food restaurants fell 2% in the first half of the year compared to the same period a year ago, according to Circana, a market research company. Circana expects high inflation and rising consumer debt will also dent traffic in the second half of 2024.
Saturday Night Quarterback says (on a Sunday), For the week ahead expect…
Earnings, earnings, earnings. From members of the Magnificent 7: Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META) and Apple (AAPL). in the consumer sector from consumer stocks Starbucks (SBUX), McDonald’s (MCD), Mastercard (MA).From drug companies Pfizer (PFE), Moderna (MRNA) and Merck (MRK). And from Big Oil Chevron (CVX), ExxonMobil (XOM), Shell (SHEL), and BP (BP). Here’s what I’d watch for.
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