Macro Recap - 2024-07-02
I think everyone can agree that recent economic data has been slower than expected. Growth headwinds along with a slew of earning reports show a more cautious environment. Stocks are up slightly with breadth recovering a little. This whole year we saw mostly Tech and AI stocks performing and dragging up the indices. (SPY, QQQ are up 15% and 19% respectively while IWM is pretty much flat for the year). With tech valuations so high, I would not be surprised the spread between tech and everything else close further.
In terms of rates, markets are predicting the first cut coming in September (around 70% prob for 9/18 meeting). I don’t have a strong opinion on when we cut this year and I think its really a function of data. The Fed is looking at data while the market is looking at the fed. What I can say (and I’ve said this in my prior posts) is that inflation will not be the only consideration. Growth / unemployment will matter much more. If we see signs of either of those deteriorating I would presume the rate cut schedule will be shift closer, vice versa if we don’t.
The other narrative that got front page treatment was the presidential debate last week. The disastrous performance from Biden pretty much gave Trump a big lead for November. Trump didn’t have to interrupt or misbehave. The outcome of the debate cause the market to reconcile what another 4 year Trump presidency would mean for the economy. While considered stock friendly, Trump’s policy would definitely create more fiscal issues (more debt). This will create upward pressure for the long end of the yield curve. We are already seeing yields move up sharply since the debate.
There are a lot of factors at play now (inflation, growth, election, AI, geopolitics) with no particular one being the main driving force. I don’t have a strong opinion on direction of the market relative to January. If you are long stocks, I don’t see a reason to sell. If you are flat, I don’t see a reason to get long given the rich valuation. What I’d like to see is more normalization before another leg up. The market trades with a lack of conviction so prices are sideways.