6 Key Indicators to Watch for Clues on Economy’s Next Direction
2024.05.31 03:01
showed a slowdown of the consumer. However, consumer spending, like so many things in the macro right now, is nuanced.
While some stores suffer poor earnings like Kohl, TJ Maxx thrives.
While people spend more on what they need than want, many are switching their spending to self-improvement-diet drugs a part of that
While costs in many areas continue to climb (insurance, housing, certain food items)-we are also seeing prices decline in airlines, car prices)
All of this is in part due to expectations changing that the Fed will stick to higher for longer and that inflation, particularly in the services area, will stay elevated.
But, the question remains:
Where is the Economy Going?
Long bonds are up a bit from the April lows and the money supply is increasing.
The is testing the lower part of the trading range.
Geopolitics Continue to Impact
- Freight costs
- Supply chain
- Government spending and rising debt
- De-Globalization
- US reshoring
And then there is Mother Nature – with floods or extreme droughts impacting crops and key commodities. Now we watch for a predicted rough hurricane season and the impact on infrastructure.
This all points to a more stagflationary environment.
And does not rule out recession down the road especially if the FED is considering a “twist” where they buy long bonds, and sell near-term bonds, but without raising the rates, in essence trying to flatten the yield curve. Or worse, they lower rates sending the signal they are worried about the economy.
Since August 2023, the U.S. has lost over 1.3 million full-time jobs, while gaining 1.4 million part-time jobs over the same period. The year-over-year measure of full-time jobs has fallen into recession territory.
Banks are worried that United Wholesale Mortgage came out with homebuyers who qualify won’t need to put down an upfront down payment.
The first mortgage will pay 97% of the cost; the second mortgage will pay the remaining 3% with no accruing interest and will balloon and be paid off when the mortgage is refinanced or paid back.
But this assumes no drop in housing prices or reduction of interest rates in that case, homeowners cannot refi to lower rates if they get enough equity out of their house to pay back the 2nd mortgage.
Bottom Line – The Best Barometers of Next Direction
- Junk bonds versus long bonds.
- to ratio.
- prices.
- The transportation sector (NYSE:): which broadcasted this last dip from the highs.
- Tech and Utes leading take a backseat to small caps picking up.
- Dollar breaks down under 104.
ETF Summary
- S&P 500 (SPY) 529 pivotal
- Russell 2000 (IWM) 210.80 ATHs resistance 200 support
- Dow (DIA) From 40k to breaking the 50-DMA
- Nasdaq (QQQ) Watching 455 level
- Regional banks (KRE) Watching the range
- Semiconductors (SMH) 240 pivotal
- Transportation (IYT) distribution phase-needs to clear back over 64.00
- Biotechnology (IBB) 135 now resistance
- Retail (XRT) Resilient sector in a bullish phase
- iShares iBoxx Hi Yd Cor Bond ETF (HYG) Broke under 77-needs to get back over that level again
