August 31, 2023
Good morning,
The S&P 500 Index (SPX) is on the move again this morning. Futures are +0.3% this final day of August. If this morning’s modest gain holds all day, it will be the fifth consecutive “up” day for the index to close out the month. A just-in-time rally because a week ago, the SPX was down -5%. It is down -1.4% now, with hours left in the month. Phew!
Tuesday’s market action was a perfect example of the over-analyze, over-extrapolate period I think the market is in until the next Fed meeting (9/20). Tuesday’s weaker-than-expected JOLTS (job openings data) and consumer confidence data sent bond yields lower across the curve by 8-10 bps. Stocks, in time-honored fashion, took them as a reason for celebration and promptly rallied (+1.45% on the SPX).
Two relatively minor, volatile data-points are not reason alone to believe a recession is a shoo-in or imminent. However, they fit a narrative of an economy with several recessionary signs and is slowing. They also highlight that the gap between the likelihood the market ascribes to a recession and the probability implied by the data has become quite large. This means that an economic downturn would be more impactful on asset prices.
That bad economic news is good for stocks syndrome, because the Fed may end its tightening cycle, might be short-lived. There appears to be a lot of room for stock prices to move down to discount emerging recession risks.
See you Tuesday. In the meantime, I hope you have a great Labor Day weekend.
Be well,
Mike