As Americans slowly get back to work following the 4th of July weekend, the onset of summer is finally here. The markets are ready for a summer reset too.
The recession call is proving so difficult. GDP negative 2Q in a row has always been at some later date been called a recession by NBER. Atlanta Fed is negative for Q2, but stdev this far out is like 1.5%, so a positive is not impossible. Meanwhile alternative measures like GDI were on the order to 2.4% in Q1. Meanwhile, credit is showing some, but not massive strain. Cuts are getting priced into the strip--nearly 100bps, which is saying recession is dead certain. There is not a obvious forced multiplier of a leverage accident in the banking sector, although shadow finance companies such as Rocket Mtg are seeing a bit of stress. I feel the way the VIX is trading as if market owns a lot of downside insurance. Sentiment is dire. Things can change but, is not the balance tilting towards a 15% rally in stocks, even if the recessions scenario and much deeper sell-off into 35% recession region is the ultimate destination...Meanwhile, liquidity is dire and remember it can work both ways...Oh btw, I love Piper Sandler since they got the Cornerstone guys, first rate, and nobody blames them for using historical parallels and thinking markets don't bottome without either a Fed pause (price in?) or ISM troughing (40ish)---of course in the midcycle slowdown thesis where ISM holds in above 50 and rebounds as confidence increases around peak in inflation, helped by lower commodities, might throw a spanner in the works...Finally on commodities---way too many times to count, arguments are made about commodites on supply that prove errant. For me its always about demand, which even if optimstic on avoiding a nasty recession, it will be key driver here....While I am not particularly bearish spoooz, I can definitely buy into $60 oil...
Richard, Data trek recently pointed out that copper might not be the best indicator towards a weakening global economy and it works on its own fundamental reasons more so and even its track record towards predicting a global recession is not stellar. Still a strong base case can be made for recession next year.
The recession call is proving so difficult. GDP negative 2Q in a row has always been at some later date been called a recession by NBER. Atlanta Fed is negative for Q2, but stdev this far out is like 1.5%, so a positive is not impossible. Meanwhile alternative measures like GDI were on the order to 2.4% in Q1. Meanwhile, credit is showing some, but not massive strain. Cuts are getting priced into the strip--nearly 100bps, which is saying recession is dead certain. There is not a obvious forced multiplier of a leverage accident in the banking sector, although shadow finance companies such as Rocket Mtg are seeing a bit of stress. I feel the way the VIX is trading as if market owns a lot of downside insurance. Sentiment is dire. Things can change but, is not the balance tilting towards a 15% rally in stocks, even if the recessions scenario and much deeper sell-off into 35% recession region is the ultimate destination...Meanwhile, liquidity is dire and remember it can work both ways...Oh btw, I love Piper Sandler since they got the Cornerstone guys, first rate, and nobody blames them for using historical parallels and thinking markets don't bottome without either a Fed pause (price in?) or ISM troughing (40ish)---of course in the midcycle slowdown thesis where ISM holds in above 50 and rebounds as confidence increases around peak in inflation, helped by lower commodities, might throw a spanner in the works...Finally on commodities---way too many times to count, arguments are made about commodites on supply that prove errant. For me its always about demand, which even if optimstic on avoiding a nasty recession, it will be key driver here....While I am not particularly bearish spoooz, I can definitely buy into $60 oil...
Richard, Data trek recently pointed out that copper might not be the best indicator towards a weakening global economy and it works on its own fundamental reasons more so and even its track record towards predicting a global recession is not stellar. Still a strong base case can be made for recession next year.