June 23, 2020
SPX: The US and global economy are recovering from the quickest and deepest recession ever. During a recovery, there’s a strong tendency for markets to grind higher as macro data moves higher. Today’s June flash PMIs from the UK, Eurozone and US came in better than expected and equities are grinding higher. Importantly, US flash PMIs for June improved from May and beat official consensus but missed ‘whisper’ expectations. Manufacturing came in at 49.6 vs. consensus for 46 (whisper of ~50) and up from 39.8 in May. Services also better at 46.7 vs. consensus for 45 (whisper of ~48) and up from 37.5 in May. Missing the whisper number will be viewed as ‘equity friendly’ because it’s not hot enough to reduce the likelihood of a fifth US fiscal stimulus package.
More: It’s very common for markets to completely retrace well before a recession ends, but most recoveries take less than 12-months. Again, this will be the quickest recession on record (deepest too), but the usual negative feedback loop that develops between weaker labor markets>weaker output>weaker corporate profits may take more than 12-months to cycle through. It all starts and stops with labor markets, which makes weekly jobless claims (every Thursday) an important number to follow. The market may be pricing for a normal sub-12 month recovery, but it could take longer because the recession was so short, if that makes sense. Something to consider for the future. At the moment, the macro growth data is improving at nearly the same rate that it fell in March and April. We’re in the midst of a global economic recovery (you could say ‘boom’) and markets have a tendency to grind higher on direction alone. The data might even miss consensus expectations, but markets will continue advancing as long as it’s better than the previous month/quarter.