I’m always on the look out for disparities and contradictions in the macro narrative.

Not necessarily because they’re exploitable for trades — typically they aren’t, or at least not in any kind of straightforward way — but rather because they make for good paint-by-number articles on days when space needs filling.

The appearance of cognitive dissonance is easy to editorialize around, particularly when you can avail yourself of a chart or two and some analyst color. It’s formulaic, but it works.

For the duration of the Fed’s hiking cycle, we heard warning after warning about the US consumer. The “lags” are longer this time, but eventually, the Fed’s 14-month stay at terminal will catch up to the world’s largest economy, and the writing’s on the wall in the form of rising delinquencies.

So said the bears. They’re still saying it. And it’s a solid narrative. But there’s an built-in contradiction. Why are the lags longer? Simple: The share of variable rate debt on household balance sheets is ~half what it was a decade ago, and corporate interest payments as a share of profits have never been lower. The figure below illustrates the point.

That dynamic varies widely at the individual household level and likewise at the individual company level: The “haves” were insulated from rising rates and in fact benefited from an inverted yield curve, while the “have-nots” were squeezed by a reliance on revolving credit, loans and other kinds of variable-rate debt. But in aggregate, both households and corporates weren’t affected by rate hikes the same way they were in past cycles.

Where’s the above-mentioned cognitive dissonance — the disparity or the contradiction? Well, the dynamics which made the lags longer haven’t really changed. If you want to point to those dynamics as evidence that a recession wasn’t averted, only delayed, you need to be able to make the case that the tide’s turning. And I’m not sure it is. At the aggregate, economy-wide level, the picture’s largely the same.

We’re used to rolling our eyes when big bank CEOs say that by and large, household balance sheets “remain healthy.” It sounds so trite and anyway disingenuous. But ignoring the “haves” / “have-nots” nuance (because who cares about that, right?) it’s actually true. Or mostly true. The same’s true of blue-chip corporate America.

That’s the brief background for SocGen’s bullish call on US consumer stocks, which some readers will doubtlessly suggest seems counterintuitive given where we (allegedly) are in the cycle, and in the context of the largest drop in consumer sentiment since August of 2021.

“Leverage in the US economy is mostly with the government,” the bank’s Manish Kabra wrote. (Moody’s agrees.) “Consumer stress has been talked about a great deal, and is visible in sectors’ relative performances [but] with leverage at 25-year lows, we need to consider where the aggregate default cycle is,” he said, in the same note.

The figure on the right, above, is derived from the same NY Fed survey I used to tally the share of variable rate date. Yes, credit card and car loan delinquencies are rising, but that debt stock is a drop in the bucket compared to the nation’s mortgages.

“Mortgage defaults continue to stay near cycle lows [and] falling mortgage rates may help to keep default rates lower too, unlike in the 2008 cycle,” Kabra went on. Note from the (macro mainstay) chart on the left that the de-leveraging trend for the household sector is intact.

Is this going to spare the US a recession? No, not in my view. But it might mean that when the recession finally does come knocking, it proves to be relatively shallow. There are caveats, of course. Total credit card debt outstanding is the highest it’s ever been in an absolute sense, up above $1.3 trillion. And if rates don’t fall fast enough, corporates will have to pay the piper: Debt has to be rolled and you won’t always be able to fund R&D, buybacks and everything else you might want to do with free cash flow.

But for SocGen, the outlook for consumers, and thereby for consumer stocks, is bright. Or anyway brighter than a bear would have you believe. “The two major pressures are easing off for the US consumer,” the bank wrote. “Mortgage rates are now falling, and consumer cyclicals tend to outperform when mortgage rates drop.”

I should note: Kabra isn’t what I’d call a runaway bull. In fact, his year-end 2024 target for the S&P is below current spot, at 5,500. He sees the benchmark ending 2025 at 5,800, not too much higher than where it is today.

The upside risk is obviously the Fed. Kabra maintains a “bubble target” for the S&P of 6,666, an outcome that would move into view in the event the Powell Fed “delivers aggressive rate cuts in a short period.” As for the bear case, if the credit cycle turns in a “mild recession,” the S&P could fall to 4,200, he said. Incidentally, 4,200 was JPMorgan’s year-end 2024 target, bless their hearts.