Stocks sold off to end the week on what was a slow week for US economic data and an increasingly anxious week for markets as we draw closer to the UK’s “Brexit” vote.
- Dow: 17,866, -118, (-0.7%)
- S&P 500: 2095, -19, (-0.9%)
- Nasdaq: 4,892, -66, (-1.3%)
- WTI crude oil: $49, -3.2%
- 10-year Treasury: 1.64%
The mood of the market got pretty bearish in the last few days this week, capped off by the latest note from Albert Edwards.
Edwards, a noted perma-bear currently writing at Societe Generale, wrote Friday that indications out of the labour market are that recession is imminent, citing the recent decline in the Fed’s Labour Market Conditions Index.
The excellent folks at Advisor Perspectives highlight the Feds Labour Market Conditions Index as suggesting a recession is imminent (the cumulative peak is an average of 9 months ahead of the start of recession and we are now four months beyond a peak. For investors who think copper still has some predictive power, its recent move is disturbing.
So that is bad!
Of course regular readers of Edwards’ products will note that this is a call he has been making for some time (not that recession is coming imminently, per se, but that worse days are most definitely just around the corner).
Edwards’ big macro theme is the Ice Age thesis that, effectively, the world is turning Japanese. Growth will disappoint, inflation will disappoint, and eventually the project will break. Edwards thinks we’re still due for a 75% decline in the S&P 500 at some point.
For reference, the S&P fell 70% during the Great Depression.
Edwards’ commentary, however, was merely the latest in a week that saw several bearish views get considerable play with Bill Gross writing about a bond market “supernova” on Thursday and reports indicating George Soros is getting back into the trading with bests against the stock market and on gold prices. A classic end of the world trade.
An informative read on what a rise in bond yields would actually mean comes from Will Martin in Business Insider’s UK office, who did the maths. The maths is bad.
The only piece of US economic data to cross the tape on Friday was the preliminary report on consumer confidence in June from the University of Michigan.
This reading fell to 94.3 from 94.7 at the end of May, but this was still better than the 94.0 expected by Wall Street economists. The survey also showed that consumers grew more concerned about the economy in the last few weeks, with their view on economic policy falling to the weakest level in almost two years.
“Consumers rated their current financial situation at the best levels since the 2007 cyclical peak largely due to wage gains,” said Richard Curtin, chief economist for the survey. “On the negative side of the ledger, consumers do not think the economy is as strong as it was last year nor do they anticipate the economy will enjoy the same financial health in the year ahead as they anticipated a year ago.”
Next week we’ll get the May report on retail sales and a reading on consumer prices, giving us a broader picture of where the driver of US economic stands.
We’re almost done hearing the not-that-great moniker for the United Kingdom’s vote on whether to remain a member of the European Union or not.
The market is now very closely watching the polls as we draw ever closer to the June 23 vote, and late Friday a poll by The Independent showed the “Leave” camp taking a 55-45 lead over “Remain,” the widest margin yet and indicating an apparent uptick in support for a vote to exit the EU.
This vote bounced the British pound around in late trade on Friday, falling more than 1% against the dollar. European stocks sold off about 2% on both Thursday and Friday as markets use the impending vote as an excuse to get jittery given that the Federal Reserve is expected to keep interest rates unchanged at both its June and July meetings.
In a note to clients on Friday, Jim Reid at Deutsche Bank shared that an informal poll taken by him of about 1,000 investors showed over 80% of respondents think “Remain” will win the vote.
This more or less reflects the conventional wisdom of the political and economic elites, that at the end of the day voters would do the “sensible” thing.
But Reid added that the market hasn’t really priced in a Brexit yet.
Rich Feloni went to the Walmart shareholder meeting. It seems fun!