Quite clearly from the price movements in the broader commodity and equity markets, it has moved away from the inflation narrative to the growth concerns narrative (perhaps not quite the full recession narrative yet) , and markets are in state of confusion as to whether it prefers hot data (higher inflation and economic activity) which implies a more hawkish Fed but more robust economy (and perhaps no recession) or if it prefers a softer economic data which it expects to make the Fed more dovish but leaning towards a recession. With increasing imputation of a recession, it looks like Wall St is hoping for a slowdown but no recession and a Fed pivot soon. That's the hope. This is why I believe you see a swing from one day to the upside to a swing the next to the downside.
And the earnings season in a couple of weeks will point how well corporate earnings are faring relative to the weakening economic outlook. Travel and airline stocks retracing again illustrates that outlook is shifting from pent up demand to a progressively challenging environment for these companies.
While you see hear CNBC pundits still hopeful of a soft landing, with the exception of unemployment and housing, key economic indicators are all pointing south and we should recognise that unemployment and housing are lagging indicators. The broad market trend is one of gradual declining faith in a soft landing scenario which aligns with the broad declining market move with remnants of intermittent hope vs despair tussle in the mix. Hopeful market participants ought to look at the broader macro trends than the day to day equity price movements. In all probability, macro trends dictate likely earnings outlook outcomes as they have been in the past, and this too we must consider that this time is also no different.
