by Franklin J. Parker, CFA
The Summary
- The big news last week was the stellar US economic growth figures for the 3rd quarter, which was revised from 4.9% to 5.2%, much more than expected. We also got data on manufacturing, which posted in contraction territory for the 13th month in a row for both the US and globally.
- This week we get the headline unemployment rate for November, job openings, and productivity figures. Unemployment is expected to hold steady, but a figure higher than about 3.9% is likely to garner a negative market reaction.
- Last week’s data reinforces the ambiguity we have been seeing: economic growth at the macro level, but weakness in the individual pieces that make up the economy. The lynchpin, in my view, is the consumer. If the consumer begins to falter, so will the economy. Markets are showing signs of weakness, however. Gold and US treasuries have rallied hard in recent days. Both are very defensive assets and indicative of investors looking for safe-havens. Again, I am watching for a catalyst to push markets either higher or lower. Without a clear signal, I believe stocks will be trading mostly sideways.
The Details
This sounds obvious but bear with me: in music, how you arrange notes is important. How you arrange notes horizontally (through time) gives important context for how you arrange notes vertically. That context is the important factor. Notes are only meaningful to our ears because of their relationship to one another. We have a similar situation when investing.
There is no “one” picture when investing, there are only individual data points that aggregate into a bigger picture. Each data point — like an individual note in music — has little meaning on its own. You have to “hear” each data point in the context of the others. What color does this add to the overall picture? How does it shift the tone, even if slightly?
Of course, just like music, there are some general rules we can follow. However, each economic environment breaks some rules in a new and different way. Again, the importance here is trying to hear the whole piece, and paying attention to the subtle differences and what they may mean to the overall sonority.
So, just like music, there is some art to the process.
Chart of the Week
Looking internationally, Sweden has entered a technical recession, seeing two quarters in a row of GDP contraction. Looking at the Swedish stock market we see that prices anticipated the contraction by a few quarters, beginning to fall in early 2022. The recent recovery in Swedish stocks may also presage a recovery in the broader Swedish economy. If a global recession is forming and if Sweden is on the leading edge of the contraction, this could be a sign that the recession will be light.
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