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The Fed wants to tighten financial conditions to cool down inflation, and investors passively holding the S&P500 and the Investment Grade credit index are so far down 13% and 16% from their peaks, see charts below. The next step is to monitor for any sign of a slowdown in the economic data. The consensus expects the April employment report on Friday to come in at 391K and the unemployment rate to decline to 3.5%, suggesting that the consensus does not yet see any signs of a slowdown in the economy. For more, see our chart book I sent around on Saturday with daily and weekly indicators for the US economy.
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The average monthly payment on a new mortgage is now $1,361, driven by higher rates and higher home prices, see chart below.
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Two cheers for the Fed
https://www.brookings.edu/opinions/two-cheers-for-the-fed/Central banks can tighten by doing nothing
https://www.omfif.org/2022/04/central-banks-can-tighten-by-doing-nothing/“The New Fama Puzzle”
http://econbrowser.com/archives/2022/04/the-new-fama-puzzleSee important disclaimers at the bottom of the page.
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Wage growth continues to accelerate in particular for job switchers, see chart below. The labor market is overheating and the Fed is trying to cool down the economy by raising rates and doing QT.
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My latest outlook presentation is available here.
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QE had a positive impact on the stock market and QT will have the opposite effect see chart below.
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The weekly data for bankruptcy filings have shown a modest uptick in recent weeks see chart below. This data is for companies with more than $50mn in liabilities. With the Fed keen on slowing down inflation investors must monitor high-frequency data for any sign of monetary policy beginning to cool down the economy.
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Yes, interest rates have increased, but 61% of all bonds in the world still trade at less than 3%. See chart below.
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I had a 45-minute conversation with Nic Millikan at CAIS about the outlook for markets and asset allocation including for alternatives:
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The chart below shows consensus expectations for GDP growth and consensus expectations for earnings growth over the coming quarters. Economists see growth slowing as we go through 2022. Equity investors see a rebound. This is not consistent. Either equity investors are too optimistic or economic forecasters are too pessimistic.
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