Published October 25, 2024
We have become firm believers that the fractured media world of our internet age has helped fuel a non-stop cycle of negativity and division. Consumers choose their media input of choice, are fed a steady diet of self-reinforcing (and self-serving) content in order to lock them into that media choice, and drift more and more toward the fear-based mindset of their media choice. The result is the extreme divisions we face where the world depicted by the “other side” looks completely foreign to us (e.g. “our side”). Fewer and fewer of us make the effort to diversify our media choices in order to insure we don’t fall into the fear trap media sets for us.
We spend a paragraph opining on this topic because of how profoundly wrong the media has been regarding the economy. We understand that the post-pandemic inflationary spike exacerbated the haves and have-nots divide that pervades our hard-core capitalistic society. It is rare that any economic action doesn’t have that effect. One by-product being that only about half of us have any stake in the stock market. Those that do have been the beneficiaries of a tremendous run of post-pandemic asset inflation. Our stock portfolios and house prices have generally rocketed upward. So why aren’t at least 50% of us dancing in the streets and extolling the virtues of our amazing post-pandemic economic rebound? See paragraph one above.
Further, read Blake Millard’s excellent round-up below of the past couple of years of (missed) economic forecasts and market moves. The stock market is up +60% in two years. As an investor, what more could you ask for? If you’re not feeling good about the strides our economy and markets have made, especially when compared to Europe and/or China post-pandemic, perhaps it’s because of the media you consume. Think about it. And ask yourself if you are doing a good job diversifying your media inputs for improved clarity!
“When in doubt, zoom out
A chorus of investors have been doubting this economy and market for the better part of two years now.
Remember this outlook heading into 2023?
The consensus forecast by Wall Street strategists in 2023 called for an outright fall in the stock market. That’s right – for the first time this century, the average forecast coming from Broad and Wall predicted a loss for the S&P 500.
Unfortunately, reality set in and caught everyone offsides as the S&P 500 ran up +26% that year.
Fast forward a year and the outlook remained nearly as tepid.
Heading into 2024, the median probability of recession remained as high as ~50% as reported by a Bloomberg survey of economists.
Surely the Federal Reserve could not thread the needle by creating a policy outcome that combined milder inflationary pressures alongside slow-and-steady employment growth.
As it turns out, half of the items in the CPI basket are now below their pre-pandemic average.
And yet, rather than the economy slowing gradually or even rapidly, it seems poised to keep growing as it is, at a moderate pace or better. Outside of the textbook technical recession in 1H22, this economy seems to be at trend growth or stronger.
Looking ahead to economic growth for the 3rd quarter, the Atlanta Fed’s GDPNow model nowcast of real GDP growth is 3.4%.
In fact, this measure isn’t softening or taking a breather. Rather, it’s been gaining strength for three consecutive months.
While doom scrolling my Twitter feed at my daughter’s field hockey practice tonight, I uncovered this gem that succinctly wraps up the post-Covid cycle in 280 characters.
Take it away, Ben !
This tweet reminded me of a wonderful quote from Callie Cox in which she said:
Pessimism makes for good stories. Optimism makes for good portfolios.
Often times, it’s so easy for humans to nitpick everything that’s wrong with the world. We get caught up in the trees and lose sight of the forest. We’re always waiting for the next shoe to drop. That’s why pessimism sells.
The current bear narrative can’t make hay of stock market all-time highs and a 20-handle on the VIX.
Before that, it was investors scared of X, Y, and Z that had them piling cash hand over fist into record levels of money market funds.
And, don’t forget the small-cap divergence! Why aren’t the junkiest stocks working, they asked?
Whoops!
Even my friend J.C. Parets seems fed up:
With Q3 earnings season kicking off, investors are more focused on fundamentals than the next macro print.
All of the big banks have reported solid-to-strong earnings over the past week, which reinforces the foundation of this bull market. If the proverbial shit is hitting the fan – because of loan loss provisions or credit creation issues or a run on the banks – then Financials would not be your market leadership group.
We have price at all time highs. Price is being confirmed by breadth, while sentiment is neutral.
U.S. households have never been in a stronger financial position.
The Fed is cutting rates proactively, not reactively to a crisis. The rolling recessions across housing, manufacturing, and tech did not sink the economy. There is no credit bubble lurking around the corner.
One more thing about this current bull. As Ryan Detrick puts it:
Want some more good news? This bull market is actually quite young. That’s right, a two-year bull market historically has plenty of life left, with the average bull market since 1950 lasting more than five years and gaining more than 180%.
Wash your hands clean of the doomer Rapture and keep your eye on target.
Why is everyone so nervous?
Market Update
Stocks continued to consolidate recent gains this week while bond yields pushed notably upward. Monday’s trading was quiet resulting in a -0.2% as gains in Apple and Nvidia offset weakness elsewhere. A flat day Tuesday with General Motors jumping +10% on strong earnings while one Fed Governor spoke of preferring slower rate cuts by the central bank. A continuing push upward in interest rates hit growth stocks Wednesday dropping the Nasdaq 100 (QQQ) -1.6%. Concerns about the impact of a possible Republican sweep in the election combined with recent signals of stronger economic growth have been noted by the Wall Street Journal as behind this month’s surge in interest rates. The 5-year U.S. Treasury rate has leapt from 3.5% to over 4.0% this month. Strength in Tesla and weakness in IBM influenced the market indexes Thursday. The Nasdaq recovered +0.8% on the day. The Nasdaq continued its rebound Friday, up +0.6%, while the broader market was flat.
The S&P 500 dipped -0.95% this week, its first weekly loss after six straight weekly gains. The Nasdaq 100 (QQQ) recovered to a +0.17% weekly tally. Small cap stocks suffered a -3.00% drop on the higher interest rates this week.
Warm wishes and until next week.