It’s way too early to proclaim a Goldilocks environment, even if major asset classes are at least pointing to a better chance of it. The S&P 500
SPX,
has gained 5% this year, and the tech-heavy Nasdaq Composite
COMP,
is up 8%, even with a seemingly daily stream of job-cut announcements. Stay tuned Thursday to a barrage of economic data.
Veteran Wall Street strategist Joe Lavorgna is certainly in the camp expecting a recession.
“The key indicators we track are all flashing recession such as the index of leading economic indicators, housing starts and the Treasury yield curve to name just a few. These indicators have turned over as the economy is still absorbing rate hikes and balance sheet shrinkage,” says Lavorgna, now chief economist at SMBC Nikko Securities America, and the former chief economist of the White House National Economic Council.
But Lavorgna allowed for the possibility that the economy will escape a recession. And, crunching the numbers, he found an impressive historical track record. For every period when the Fed initially cut interest rates and recession was avoided, the S&P 500 was higher, after three, six and 12 months.
The best period was after the Russian debt default/LTMC crisis of July 1998 — after the Fed cut that September, stocks rose nearly 26% over the 12 months. As the chart shows, the market on average rose by double digits after the reductions.
“But for the stock market to produce such impressive results, the economy needs to avoid a hard landing. Otherwise, the probabilities favor lower prices sometime over the months ahead. Given this binary situation — recession or no recession — it is understandable why market participants are so fixated on the macroeconomic data,” he says.
Dhaval Joshi, chief strategist of BCA Research’s Counterpoint, says the trouble for investors is knowing whether the economy is in a recession, because gross domestic product is released so many weeks after the quarter’s mid-point.
Instead, he likes to use U.S. retail sales divided by average hourly earnings, as a proxy for corporate profits. Whenever the ratio between them falls by 3.5% from its peak, the unemployment rate goes on to rise at least 0.6% — and once the jobless rate rises by at least 0.6%, it never fails to eventually rise over 2%, over the last 75 years.
That ratio is getting pretty close the point of no return — down just over 3% from its peak.
He added that the resilience, so far, of the jobs market makes sense, because companies wait until profits fall to start cutting jobs. In the one industry where profits are falling, technology, they are indeed laying off workers.
Joshi advises remaining defensive on a six to 12 month horizon, by overweight bonds to stocks, healthcare versus technology, gold versus oil, and the Japanese yen versus the euro. And he said Feb. 15 will be a crucial date — when the next retail sales report comes out.
The market
U.S. stock futures
ES00,
NQ00,
were pointing to a stronger start. The yield on the 10-year Treasury
TMUBMUSD10Y,
was 3.51%. Oil
CL.1,
was trading just over $81 per barrel.
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
The buzz
A big day for economic data saw fourth-quarter GDP grow 2.9%, a touch more than forecast, with durable-goods orders rising 5.6% in December. Weekly jobless claims fell to 186,000.
After the open, new-home sales data will be released.
Tesla
TSLA,
stock rose after the electric vehicle maker reported stronger-than-forecast earnings as CEO Elon Musk said that Cybertruck production would begin this year.
Dow
DOW,
said it will cut 2,000 jobs as the chemicals company reported below-forecast earnings.
IBM
IBM,
shares slipped, as the technology giant missed a cash flow goal and said it would cut 3,900 jobs. German database maker SAP
SAP,
said it’s cutting 3,000 jobs.
Chevron
CVX,
announced a $75 billion stock buyback.
Meta Platforms
META,
says it will end the suspension of former President Donald Trump in the coming weeks.
Best of the web
Alphabet’s
GOOGL,
Google prepares for its second antitrust battle.
Snap’s
SNAP,
Snapchat was accused of propagating the fentanyl poisoning crisis.
Morgan Stanley
MS,
is fining workers up to $1 million for using WhatsApp for company business.
Britain’s on the verge of becoming an economic basketcase (subscription required).
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
| Ticker | Security name |
|
TSLA, |
Tesla |
|
BBBY, |
Bed Bath & Beyond |
|
GME, |
GameStop |
|
AMC, |
AMC Entertainment |
|
MULN, |
Mullen Automotive |
|
NIO, |
Nio |
|
AAPL, |
Apple |
|
HLBZ, |
Helbiz |
|
AMZN, |
Amazon.com |
|
MSFT, |
Microsoft |
Random reads
“Miraculous things” are coming in the poop category, the CEO of Kimberly-Clark says.
A hacker has put the names of every single person in Austria up for sale.
A teenage Egyptian mummy decked in gold was uncovered after 2,300 years.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.
It’s way too early to proclaim a Goldilocks environment, even if major asset classes are at least pointing to a better chance of it. The S&P 500
SPX,
has gained 5% this year, and the tech-heavy Nasdaq Composite
COMP,
is up 8%, even with a seemingly daily stream of job-cut announcements. Stay tuned Thursday to a barrage of economic data.
Veteran Wall Street strategist Joe Lavorgna is certainly in the camp expecting a recession.
“The key indicators we track are all flashing recession such as the index of leading economic indicators, housing starts and the Treasury yield curve to name just a few. These indicators have turned over as the economy is still absorbing rate hikes and balance sheet shrinkage,” says Lavorgna, now chief economist at SMBC Nikko Securities America, and the former chief economist of the White House National Economic Council.
But Lavorgna allowed for the possibility that the economy will escape a recession. And, crunching the numbers, he found an impressive historical track record. For every period when the Fed initially cut interest rates and recession was avoided, the S&P 500 was higher, after three, six and 12 months.
The best period was after the Russian debt default/LTMC crisis of July 1998 — after the Fed cut that September, stocks rose nearly 26% over the 12 months. As the chart shows, the market on average rose by double digits after the reductions.
“But for the stock market to produce such impressive results, the economy needs to avoid a hard landing. Otherwise, the probabilities favor lower prices sometime over the months ahead. Given this binary situation — recession or no recession — it is understandable why market participants are so fixated on the macroeconomic data,” he says.
Dhaval Joshi, chief strategist of BCA Research’s Counterpoint, says the trouble for investors is knowing whether the economy is in a recession, because gross domestic product is released so many weeks after the quarter’s mid-point.
Instead, he likes to use U.S. retail sales divided by average hourly earnings, as a proxy for corporate profits. Whenever the ratio between them falls by 3.5% from its peak, the unemployment rate goes on to rise at least 0.6% — and once the jobless rate rises by at least 0.6%, it never fails to eventually rise over 2%, over the last 75 years.
That ratio is getting pretty close the point of no return — down just over 3% from its peak.
He added that the resilience, so far, of the jobs market makes sense, because companies wait until profits fall to start cutting jobs. In the one industry where profits are falling, technology, they are indeed laying off workers.
Joshi advises remaining defensive on a six to 12 month horizon, by overweight bonds to stocks, healthcare versus technology, gold versus oil, and the Japanese yen versus the euro. And he said Feb. 15 will be a crucial date — when the next retail sales report comes out.
The market
U.S. stock futures
ES00,
NQ00,
were pointing to a stronger start. The yield on the 10-year Treasury
TMUBMUSD10Y,
was 3.51%. Oil
CL.1,
was trading just over $81 per barrel.
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
The buzz
A big day for economic data saw fourth-quarter GDP grow 2.9%, a touch more than forecast, with durable-goods orders rising 5.6% in December. Weekly jobless claims fell to 186,000.
After the open, new-home sales data will be released.
Tesla
TSLA,
stock rose after the electric vehicle maker reported stronger-than-forecast earnings as CEO Elon Musk said that Cybertruck production would begin this year.
Dow
DOW,
said it will cut 2,000 jobs as the chemicals company reported below-forecast earnings.
IBM
IBM,
shares slipped, as the technology giant missed a cash flow goal and said it would cut 3,900 jobs. German database maker SAP
SAP,
said it’s cutting 3,000 jobs.
Chevron
CVX,
announced a $75 billion stock buyback.
Meta Platforms
META,
says it will end the suspension of former President Donald Trump in the coming weeks.
Best of the web
Alphabet’s
GOOGL,
Google prepares for its second antitrust battle.
Snap’s
SNAP,
Snapchat was accused of propagating the fentanyl poisoning crisis.
Morgan Stanley
MS,
is fining workers up to $1 million for using WhatsApp for company business.
Britain’s on the verge of becoming an economic basketcase (subscription required).
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
| Ticker | Security name |
|
TSLA, |
Tesla |
|
BBBY, |
Bed Bath & Beyond |
|
GME, |
GameStop |
|
AMC, |
AMC Entertainment |
|
MULN, |
Mullen Automotive |
|
NIO, |
Nio |
|
AAPL, |
Apple |
|
HLBZ, |
Helbiz |
|
AMZN, |
Amazon.com |
|
MSFT, |
Microsoft |
Random reads
“Miraculous things” are coming in the poop category, the CEO of Kimberly-Clark says.
A hacker has put the names of every single person in Austria up for sale.
A teenage Egyptian mummy decked in gold was uncovered after 2,300 years.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.
