Are equities finally connecting the dots? Maybe. Whilst this has been a difficult market to trade – my sense was to approach with caution. From mine, there were too many open questions. For example, when the market was trading around 4600 – my sentiment was the downside risk outweighed any upside reward. We are now ~8% lower… closer to the zone of where I felt the S&P 500 could trade. In short, valuations were stretched. Put another way, the risk premium for owning stocks wasn’t there. But markets pushed higher – taunting the Fed on their “higher for longer” script.
One Trend That Isn’t Sustainable
More “bad news is good news” hit the tape today… The monthly ADP private jobs number came in far weaker than expected. I say ‘good news’ as it potentially means less Fed (or at least that’s the assumption). Here’s CNBC: “Job creation in the United States slowed more than expected in August, according to ADP, a sign that the surprisingly resilient U.S. economy might be starting to ease under pressure from higher interest rates”
“Navigating by the Stars Under Cloudy Skies”
Today Fed Chair Jay Powell offered his latest sentiment on the economy and monetary policy from the Jackson Hole Summit. Whilst he leant hawkish (my expectation) – he also admitted he doesn’t know what’s ahead. Nothing wrong with that… better decision making starts by first recognizing what we don’t (or can’t) know. Powell stated “… as is often the case, we are navigating by the stars under cloudy skies”. Question is – what does that mean for markets and rates ahead?
Why Core Inflation Will Remain Sticky
Markets got excited on news of the softer-than-expected CPI headline print today. Headline inflation came in at 3.2% YoY vs expectations of 3.3%. However, what deserves closer scrutiny is not the headline number – it’s Core CPI at 4.7% YoY and shelter costs. For e.g., two-thirds of the monthly inflation increase came from shelter – where rents rose 0.4% MoM. This is now the 18th straight month the price of shelter has risen at least 0.4% MoM. But here’s the thing – there isn’t. much the Fed can do with monetary policy to change this.
For a full list of posts from 2017…