A Wild Week of Reports – The Good, The Bad, The Ugly

Good morning!

It has been a wild week in the macro world, with a ton to break down. The Fed is pausing rate hikes, sending stocks and bonds higher. The S&P jumped on the confirmation of the pause, which was largely expected.

In the following FOMC meeting, Jerome Powell did his best tough guy act that we have seen, where he made a single word call out to Janet Yellen to stop spending every dollar we can print. His statement: “Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation.” Clearly, J-Pow pulls no punches!

The Good:

A pause shows that the Fed believes that it has taken enough action to at least slow inflation, and we have not seen major job loss at this time. However, what Powell is pointing out is this: rate hikes mean nothing if we continue to spend like it’s going out of style.

The Bad:

First off, the alarming thing with a pause is that a fall usually comes next. But that is a topic for another day. The bad in the reports came in the form of employment data and the Purchaser’s Manufacturing Index, which is widely seen as a predictor of larger economic trends. The PMI was well below expectations, hinting toward economic contraction.

Additionally, data released this morning shows higher initial jobless claims AND continued jobless claims higher than expected. The numbers still are not crazy, but the upward trend is not your friend.

The Ugly:

The Atlanta Fed cut its 4^th Quarter GDP expectation in half. Last week, their expectation was Gross Domestic Product growth of 2.3%. That has now been lowered to 1.2%, notably following the much lower than expected ISM Manufacturing PMI that we discussed earlier. With “weak demand” being mentioned over 300 times on earnings calls over the past few weeks, showing that CEOs across all industries and all parts of the country are concerned about the health of our economy.

What we do about it?

Especially after the Fed announcement yesterday, the signs point to “proceed with caution.” I am holding my longer term shorts but am considering some shorter term long calls on the market. This would 1. Offset any losses our shorts would expose us to. And 2 allow us to play the upside over the Christmas season, hoping for a strong end of the year.

What do you think? Is inflation a thing of the past or are we still in the middle of the game? If only these numbers could report on the future!

Have a great weekend!

Ryan02