Economic and financial-market news has been decidedly indecisive of late.
A U.S.-China trade deal is on, then off. Earnings blow hot and cold. The stock market has a very different tale to tell than bonds do. We do the Great Rotation, then shimmy back the other way.
As David Rosenberg, chief economist for wealth manager Gluskin Sheff, put it, “what investors need most right now is a detective, not a cheerleader.”
Of course, some might suggest Rosenberg is hardly a neutral voice — though he’s certainly no cheerleader. Rosenberg has long been known on Wall Street as a “perma-bear,” though that’s not really fair: he’s had some stretches of bullishness.
This is not one of them.
In Rosenberg’s Wednesday note, he explains some of his thinking, from “a U.S. presidency in complete disarray” to escalating violence in Hong Kong, Brexit, populism in South America, and more. And he adds throws in some data points that may not get as much attention as some of the market movers, even if they should.
Related: Investors are loading up on cash. That’s not a good sign.
“All the economic risks remain tilted to the downside,” Rosenberg said. “It seems lost on many people that the Atlanta Fed GDP forecast is down to 1.0% real GDP growth for Q4 and the NY Fed forecast is for a mere 0.7% at an annual rate. Yet the narrative remains how strong the U.S. economy is. Surreal. This is a stall-speed economy now with 30% of GDP in a recession.”
Rosenberg famously stuffs his morning newsletter full of charts, and Wednesday’s was no exception. He took a look at the leading indicators index from the Organization of Economic Cooperation and Development, which has either stayed flat or declined every month since November 2017.
Rosenberg also took a deep dive into the recently-released small business sentiment survey from the National Federation of Independent Business. The headline number improved marginally in October, he noted. “However, this is still below its 12-month moving average, signaling to us that the downtrend remains intact. Further to this point, the peak for the cycle was put in last August, and since this time we have seen a pattern of lower highs. If this were a stock, a technical analyst would have a ‘sell’ label on it.”
Another indicator that seems to have peaked some time ago is the New York Fed’s leading inflation index, Rosenberg noted. That’s a gauge that aggregates multiple data points to try to offer a more robust take on inflation than traditional readings like the consumer price index.
“As for inflation, it remains completely dormant,” Rosenberg wrote. “This is all you get with this recent surge in investor risk appetite and asset prices? Seriously? I’ll buy those bonds you want to dump. Gladly.”
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