Heading for a Slowdown
Markets are mixed and mixed up.
You know what it means when the Federal Reserve decides it’s seen enough incoming data to cut its benchmark interest rate, right?Is it possible investors, traders, and speculators are beginning to understand that slowing growth means companies won’t meet raised earnings expectations?
After rallying on rate-cut hope, will we see a correction on rate-cut reality?
Do these rhetorical questions sufficiently communicate the level of ambivalence of price action so far in June, as short as that is here on the third trading day of the month?
The CBOE Volatility Index did creep higher on Monday and Tuesday and is up a little more than 2 percent since May 31.
The S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average closed in the green after spending time in the red during the trading session.
The Russell 2000 was down 1.25 percent.
And bonds rallied on higher rate-cut hopes after the Bureau of Labor Statistics said US job openings fell more than expected in April to the lowest level in almost three years.
The JOLTs print hasn’t been that low since February 2021.
According to Reuters, Fed Chair Jerome Powell is a fan of the openings-to-unemployed persons ratio, which declined to 1.24 from 1.3 in March.
That’s the lowest level for this measure of labor market tightness since June 2021. It’s well below the post-pandemic peak of nearly two to one and is tracking toward pre-pandemic highs.
We’ll have more opportunity to consider the rate cut-economic slowdown conundrum with Thursday’s release of initial jobless claims data for the period ending June 1.
And then it’s Jobs Friday.
The safest base-case scenario, based on observation, is we probably won’t know whether the Fed has seen enough incoming data until it’s too late.
That’s what history tells us, and that’s what Fed Chair Jerome Powell’s lawyerly, evidence-based approach suggests to me.
We’re on the verge, though, of some divergence among global monetary policymakers, with the Bank of Canada maybe ready to announce a cut today and the European Central Bank almost certainly to do so tomorrow.
That divergence risks renewed strength for the US dollar wrecking ball and the export of inflation.
