So last night, in “Monday Night Read: One Chart And Some ‘Hard’ Thoughts On ‘Soft’ Data” I said the following about the rather unfortunate series of econ prints we’ve been subjected to over the past several days:
Right, so if you have a fragile ego and are the type of person who is out looking for confirmatory evidence for your optimistic outlook for the US economy, you’re probably in a bad mood.
Why? Simple: all the data has been bad over the past couple of days.
Friday we got the first read on Q1 GDP and it was bad (although heading into the actual print it kinda felt like expectations had been set low enough that the market was able to take the number in stride). And then this morning, the Fed’s favorite econ indicator dipped (back) below target, spending came in light, and to top it off, the ISM and Markit prints were lackluster.
Of course stocks are like the honey badger – they “just don’t care.” They’re “the most fearless asset in the animal kingdom.”
Do you know why? Well, here’s one reason:
For anyone who is still skeptical about the extent to which central bank liquidity is behind the ebb and flow of equity prices, that should clear things up.
Indeed, it makes almost no sense to view spikes in volatility as genuine risk-off events because global central banks bought $1 trillion in assets in Q1 alone. Who the fuck wants to try and bet against that?
That’s why the dips are always bought and that’s why the snapback on vol spikes tied to geopolitical land mines looks like this:
As you might also be aware, “honey badger don’t care” about macro either. Have a look at the difference between Citi’s macro surprise index for the US versus the same index for Europe:
Does the dour macro picture matter for US equities? It would appear not. Again, “honey badger don’t care.”
Well on Tuesday afternoon, Goldman is out asking the following simple question in light of the most recent batch of poor data (listed above): “should investors trust the market of the macro surprises?” Below, find the color and a visual…
This week’s focus: ISM manufacturing down, S&P 500 up
The ISM, Q1 GDP and core PCE in the US recently came in below consensus and GS expectations, and the China PMI disappointed as well. Although the ISM remains above 50, it fell for the second straight month, by 2.4 points to 54.8, with the new orders component falling significantly. However, the S&P 500 was actually up 17 bps on the day the ISM fell, leading to the question of whether investors should trust the positive market performance or the negative macro surprise as an indicator of where the market may go from here.
From here we forecast muted returns for equity and think it will be difficult for the market to decouple meaningfully from the macro data for an extended period of time. In March the US market actually faded somewhat as policy optimism did as well, even though macro surprises were generally positive during that period. But now macro surprises have closed the gap (Exhibit 1). We think further positive macro surprises will likely be needed if the market is to perform well going forward. We have written previously that as the ISM slows down returns are usually lower – but not necessarily negative – and volatility usually picks up eventually as concerns about growth materialise, but that this will likely take time. In our asset allocation we continue to like EAFE and EM equities relative to the US, as valuation and the cyclical backdrop appear more favourable.
Right. “From here,” Goldman imagines “it will be difficult for the market to decouple meaningfully from the macro data for an extended period of time.”
Ultimately, as long as central banks don’t put the brakes on too fast, you can rest assured that nothing – not geopolitical surprises and not adverse econ outcomes – will matter for long, because with the Draghi/Kuroda put still squarely in place, equities are like the honey badger – they just “don’t give a shit.”