The organization that says whether the economy is in recession or not in the US appears to be sleeping on the job.
The National Bureau of Economic Research defines a recession as the period between a peak of economic activity and the subsequent trough or low. There is no debate that the NBER was right to mention the last cycle peak in February 2020, but the bottom, if you look at unemployment claims, was the end of April, and no later than May if you look at work or personal income looks.
Employment and personal income are well above the lows.
For markets, it matters when the economy expands or is in recession. According to Deutsche Bank research, growth, as measured by the Institute for Supply Management’s production index, typically peaks 10 to 11 months after the end of a recession. That would be the case now, if you stick to the NBER definition of recession and not the stubborn refusal to say it.
Over the past 20 years, there has been a 73% correlation between the annual, trailing gains of the S&P 500 SPX,
and the level of the ISM manufacturing index. That makes sense – you would expect growth assets, such as stocks, to be correlated with measures of economic growth.
According to Deutsche Bank’s figures, the S&P 500 sold around peak growth rates at a median of 8.4%, and declined at a median of 5.9% as the ISM flattened rather than declined. And the timing of these drops was soon after the peak – usually two weeks after that, and lasted a total of six weeks.
So when that peak comes is important. And Deutsche Bank says it will come in the next three months – not a huge shock given that the reading reached 64.8% in March, a 38-year high.
“With growth peaking over the next three months, we expect discretionary investors to break their positioning from extremely high levels, and we see that retail investors are unlikely to buy the dip. Using historical experience as a guide, you argue for a drop of nearly -6% as growth flattens out at peak, a greater drop of -8.4% for a reverse V in growth, ”said strategists led by Binky Chadha.
From there, however, stocks can recover, they say. And the key in late summer and fall will be whether inflation continues or accelerates, and how the Federal Reserve is responding.
Fed for minutes on deck
The minutes of the Fed’s latest interest rate decision will be released at 2 p.m. East. The markets will focus on any discussion of the timing of the slowdown in the pace of bond purchases and how “substantial further progress” toward maximum employment and price stability targets – the Fed’s condition for tapering – is defined.
Jeff Bezos, the CEO of online shopping giant Amazon AMZN,
supports an increase in corporate tax to pay for increased infrastructure spending, The Wall Street Journal reported, citing a corporate memorandum. JPMorgan Chase JPM,
Chairman and CEO Jamie Dimon used his annual letter to advocate for tougher regulation of non-bank competitors, calling for the abolition of tax breaks, saying higher taxes would be justified for the wealthy.
Cruise operators including Carnival CCL,
and Norwegian Cruise Line Holdings NCLH,
extended Tuesday’s gains in premarket trading, amid optimism about when bookings could go ahead. Irish Low Cost Airline Ryanair Holdings RYAAY,
The aforementioned European travel restrictions will lead to passenger traffic being placed on the low side of the directive.
Industrial conglomerate Toshiba 6502,
jumped into Tokyo trading after receiving a proposal to be bought by CVC Capital Partners in what would be one of the greatest private equity deals of all time if completed. Singapore Grab’s food delivery and payment service is slated for a $ 35 billion valuation in a deal to be acquired by Altimeter Capital’s Altimeter Growth 1 AGC,
special-purpose acquisition company, according to the Financial Times.
Some DoorDash DASH,
According to Bloomberg News, workers are trying to use the algorithm to offer more expensive jobs.
Sign up for MarketWatch Investing in Crypto event.
10 years of relaxation
The return on the 10-year Treasury TMUBMUSD10Y,
has fallen over the past week, hitting 1.66% on Wednesday.
US Equity Futures ES00,
NQ00,
were little moved.
People are no longer driving the demand for microchips
Microchip equipment maker Applied Materials AMAT,
on Tuesday set out its vision for the coming years, targeting fiscal year 2024 earnings of $ 8.50 per share from revenues of $ 26.7 billion. Although the market did not respond warmly, one of the charts shows the demand for microchips – driven by algorithms, not human consumption.
Random reads
The owner of the world’s largest cryptocurrency exchange does not own a car or a house.
Singing in the alien rain? Alien raindrops are like rain on Earth.
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