Don’t let the headline fool you - we are optimists at heart, always trying to find the positive in any situation. And it is hard, despite these challenging times, not to feel optimistic as we step back and consider that great American engine of wealth creation, Wall Street. There is its longevity (traders first gathered under a buttonwood tree in Lower Manhattan in 1792); the larger than life characters who have dominated the markets and made incredible fortunes (John Pierpont Morgan); the sheer scale of the markets (the market capitalization of all US listed companies is approximately $42 trillion), and the language that is Wall Street’s own (“bull market,” “bear market,” “sell in May and go away,” “don’t fight the Fed”).
And that language is at the heart of this week’s note, specifically that confusing, albeit timely Wall Street classic, “when good news is bad news,” as it seems Wall Street might have gotten more good news about the economy last week than it wanted. Consider, last week investors received better-than-expected readings on the US consumer (Conference Board’s Consumer Confidence Survey), manufacturing (Chicago PMI), services (Non-Manufacturing ISM Report), and the labor market (Nonfarm Payrolls Report For May). And another way to gauge the health of the labor market is last week’s JOLTS report which showed “half a worker” available for every job opening (see graph). While the strong data points are welcome and should dimmish talk of recession, they are a reminder the Federal Reserve has work to do to slow the economy and tamp down historically high inflation.
Which brings us back to our headline. It isn’t so much that Wall Street is rooting for bad news, but rooting for economic news that is less good, if that makes sense, with the idea being that a clearly slowing (but still expanding) economy would allow the Fed to ease up on the rate hiking front just a bit. The better-than-expected economic news likely means the Fed will raise rates by 50bps at its June and July meetings, and that a 50bps hike is still on the table for its September meeting. We remain optimistic on the economy and the markets and believe the Fed can engineer a soft landing, but we aren’t there just yet.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 982-BCI-6/6/2022