With the correlation between bonds and stocks returning to negative (a good thing, from a diversification point of view!) the market is signalling that worries have shifted somewhat from inflation to growth, specifically, whether we might be on the cusp of a recession.
That is not at all visible in the data. “Core” capex, shown below (goods that last more than three years) continues to rise and is strong on all frames.
The housing slowdown is real, and it is a major indicator for us, however it is meant to slow, it is the key part of the economy that the Fed is worried about overheating.
So, complex, sure, nuanced, sure, but for a broader “recession” framing, you need to see investment rolling over, in turn reflecting a lack of confidence from consumers and businesses alike.
And near term, this just doesn’t seem likely.
Stock-markets have priced 15 of the last 7 recessions, meaning that the market, fearing a recession, sell-off, and when the bad thing doesn’t happen, or the data continues to prove sufficiently robust, the market recovers.
That may or may not eventuate here, from the Fed’s tightening, but it would be too soon to call from this data.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.