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Who You Gonna Believe? Stocks, Bonds Tell Divergent Recession Stories
One of the key macro-market talking points headed into this month said benchmark equities (i.e., stocks at the index level) came out of August disconnected from rates, FX, commodities and even from their own internals in terms of pricing economic slowdown risk.
To my mind, the best illustration of that disparity was (and still is) the S&P plotted with 2024 Fed-cut pricing.
Regular readers will recognize the figure below. I've inverted the S&P so you can better visualize the ostensible
I generally believe bonds over stocks, because bond investors are methodical, gimlet-eyed, calculating machines while stock investors are squirrel-chasing, starry-eyed, feeling machines. Or so I always thought. But yields are moving around so much now, with market-implied cuts gyrating from five to none to four in the last several months, that I am getting skeptical of both. I’m treating base metals as more of a China indicator than anything else.
Those who have a front-row seat to the order books of major USA OEMs across multiple end-markets believe the Bond signals.
H-Man, the bond market never tells a tale.