March 31, 2023
Good morning,
The equity market continues to rally as the steam comes out of the banking system turmoil. The S&P 500 Index is almost back to its one-month high, where it was just before the SVB bank liquidity kerfuffle began. This raises a bit of a quandary. If things are good enough for equities to trade like this, then we probably are not going to need the Fed rate cuts that are priced into the second half of the year and beyond. Aren’t the anticipated rate cuts a primary driver of stocks bouncing back? Hence, the quandary.
As we look back at this quarter on its last day, global economic recoveries surprised the 2023 consensus the most. China has seen a smoother than anticipated recovery from zero-Covid, strong job and consumption growth here in the U.S. make a compelling argument for no recession at this time, and the latest macro data suggest Europe may be dodging a recession for now.
But tightening financial conditions and a resolute Fed fighting inflation increases the probability that the current global economic recovery may be short-lived. History suggests that equities rally between double-dip slowdowns. Let’s enjoy it while it lasts.
Hope you have a nice weekend.
Be well,
Mike