Here are the takeaways from today's Morning Brief. sign up Every morning you will receive the following message in your inbox:
One of the most puzzling adages for stock market investors is that “good news is bad news.”
Slower job growth, slower wage growth, lower inflation, and a softer economy are often seen as positive for the stock market because they portend lower interest rates.
And as we all learned in 2022, the opposite can be painful for investors.
What people really want now is a painless “soft landing” from the economic downturn, just a cloudy day after a sunny day rather than a ferocious storm, with the Fed giving the S&P 500 an all-time high. This means that you will be able to present value. The preferred cocktail is lower interest rates, which will delight stock investors.
But what if all the bad news isn't bad? Inflation has continued to moderate recently, while other economic indicators have continued to perform well. And the stock market is trying to figure out which side is on the upswing.
This week's chart focuses on the 10-year Treasury yield, the go-to indicator of long-term interest rates.
Since December, the 10-year Treasury yield has risen 30 basis points, each time hot economic data on spending is released, like this week's retail sales report that showed consumers like Jack Reacher. continues to rise.
That's a concern for some, since high yields are often tied to high Fed rates and high inflation. However, rising interest rates also have a positive side, as they reflect economic growth.
As Renaissance Macro's Neil Dutta wrote in a note this week, yields rose on “activity days” (retail sales and employment data) and fell on “inflation days” (CPI).
The interpretation offered by Mr. Dutta is that “interest rates rose not because inflation got stronger, but because economic growth got stronger.''
One implication, Dutta writes, is that “if you accept it,” stocks should ultimately view warm economic data as a positive.
If we've learned anything about the markets in 2023, it's that the modern US market has an incredible ability to shake off bearish factors (high interest rates) when there are new bullish factors to be excited about (AI). That means there is.
Optimistic? Fomo? who knows. But consumers are happy, they're buying, and inflation is moving slowly, albeit slower than some would like. The end of hoping for weak data may be near.
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