Sonu Varghese
A Popular Recession Indicator is Flashing Bright Red. Should We Worry?
A political strategist once said that if there were reincarnation, he would want to come back as the bond market. “You can intimidate everybody,” as he put it. With good reason, investors watch bond markets carefully for all sorts of signals about the economy, monetary policy, and inflation. And right now, a key signal from …
Sonu Varghese
November 29, 2022
Why Consumer Spending is Strong, and Could Remain That Way
Last week I wrote about how economic growth is set to accelerate in the fourth quarter on the back of solid consumer spending. But the big question is whether consumer spending will remain strong in 2023. This is important because consumption, or lack thereof, will determine whether or not the US will experience a recession …
Sonu Varghese
November 23, 2022
Economic Growth Looks Set to Accelerate in Q4, On The Back Of The Consumer
We just got some positive data regarding the consumer, in the form of a really strong retail and food service sales report. Retail sales rose 1.3% in October, beating expectations for a 1% gain. On top of that, sales for prior months were also revised higher. Now, one big reason was stronger gasoline sales, which …
Sonu Varghese
November 17, 2022
What Could Go Right?
It’s been a tough year, both for stocks and bonds. Perhaps the bonds piece of it has been tougher, mostly because you typically expect bonds to zag when stocks zag. Instead, they’ve gone down together. And as stocks and bonds have gone down, negativity has increased. Don’t get me wrong – there’s enough to be …
Sonu Varghese
November 16, 2022
A Soft Inflation Print Acts as A Pressure Release Valve
What a day for markets yesterday. The S&P 500 Index gained 5.5%, its best day since April 2020. Here’s a chart from my colleague Ryan Detrick, showing some historical perspective for days that saw more than 5% gains. A year later markets were up 91% of the time, with an average return of almost 28%. …
Sonu Varghese
November 11, 2022
Encouraging Inflation Report, Including Goods Deflation
One month does not make a trend, but today’s consumer price index (CPI) report was very positive. Dare I say, it’s probably the best inflation report we’ve seen in about 15 months, especially because there were so many encouraging signs in it. This is a huge relief, and markets appear to be responding in kind. …
Sonu Varghese
November 10, 2022
A Tale of Two Employment Reports
Talk about a mixed picture from the October payroll report. Two headline numbers stand out: Nonfarm payrolls rose by 261,000 in October, more than an expected increase of 200,000 The unemployment rate rose to 3.7% The first headline suggests that employment is strong, and the economy is resilient to higher interest rates, so far. This …
Sonu Varghese
November 4, 2022
The Silver Lining of Another Fed Rate Hike
The Federal Reserve (Fed) just raised rates by 0.75%, taking the federal funds rate to a target 3.75-4.0% range. This is the 4th consecutive 0.75% interest rate increase and comes as the Fed tries to get on top of inflation. The bond market has been anticipating this aggressive pace of tightening, and treasury yields have …
Sonu Varghese
November 3, 2022
Economic Growth Picked Up, But A Lot is Going on Underneath
On the face of it, the third quarter GDP report was very positive, with growth rebounding to 2.6% quarter-over-quarter (annualized). This put at bay the question of whether the economy was in a recession, though admittedly a lot of these numbers can and will be revised in the future. But make no mistake, growth has …
Sonu Varghese
October 28, 2022
A Divergence in the Housing Market, and Why it Matters For Inflation
Last week I wrote about how the housing market is in big trouble amid surging mortgage rates. Sales have collapsed and so have housing starts and building permits, indicating builders are pulling back. Prices have started to fall, with the Case-Shiller national home price index falling 0.9% from July to August, the second consecutive monthly …
Sonu Varghese
October 26, 2022