This week’s economic indicators continue to reflect a resilient U.S. economy despite the ongoing pressure from higher interest rates. Jobless claims dropped to 227,000, indicating a steady labor market. Durable goods orders came in strong, aligning with estimates, and GDP growth for Q3 is expected to come in between 3% and 3.25%, a robust figure by most standards.

The U.S. election outcome is anyone’s guess, so let’s try to game out the winners and losers from the candidates’ major policy proposals.

The latest economic data reveals a resilient economy, led by strong retail sales and a surprising drop in jobless claims. Despite some weakness in manufacturing, industrial production, and housing, overall economic strength is reflected in the projected third-quarter real GDP growth, expected to come in at a robust 3%—largely driven by productivity gains. This productivity led rebound is very positive and this confirms that despite tighter monetary conditions, the real economy remains strong.

This past week saw a notable surge in the stock market, pushing it to all-time highs, despite mixed economic data. Inflation figures, jobless claims, and sentiment reports have been uneven, but markets remain resilient, with the VIX hovering around 20—a sign that fear persists among investors.

Exchange-traded funds (ETFs) have grown in popularity as one of the most flexible and accessible investment vehicles available today. Offering a blend of stock-like liquidity and mutual fund-like diversification, ETFs can serve as a core component in the portfolios of both novice and experienced investors

The Fed’s “recalibration” of monetary policy is more than just about shifting to rate cuts. It also involves where the policy maker is now placing its greater emphasis on setting the course for easing in the future. Rather than inflation being the primary driver in the decision-making process, labor market activity has now taken center stage, and with that, one could argue, for the Fed, it’s now about the economy.

The jobs report closed last week with robust read outs of an official number that beat economist expectations. Below the surface, however, hours worked fell to levels often associated with recessions. This juxtaposition of more workers clocking fewer hours suggests that while employment figures are up, the quantity of work didn’t expand much.

Over the past several years, high-yield bonds have delivered impressive returns, outperforming most other sectors of the fixed income market.

The M2 money supply growth rate in the U.S. accelerated, marking the first time the monthly change exceeded a 5% annualized rate after several months of more moderate increases. A 5% money supply growth is a desirable target, as it reflects 2-3% growth in the economy with 2% inflation. Thus, the uptick in money growth is reassuring and supports the possibility that we will avert a hard landing for the economy.

While agency mortgage-backed securities offer compelling valuations, not every mortgage is created equally.

In the span of a few days in late July, the market got live to two contrasting theories at once: that U.S. inflation is collapsing while Japanese inflation will remain stubbornly high.

I was pleasantly surprised by the Federal Reserve (Fed) decision to begin the easing cycle with a 50-basis point (bp) cut as the real economic data came in relatively stronger than expected.

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Corporate tax rate policy is a routine hot-button issue during every presidential election cycle, and this year’s campaign is no different.

After much anticipation, the Fed finally delivered a rate cut at the September FOMC meeting. The amount had been the subject of a great deal of speculation of late, and the voting members decided on a half-point reduction to kick off this easing cycle, bringing the new Fed Funds trading range down to 4.75%–5%.

The markets closed quite strong last week and were approaching all-time highs again for the S&P 500. The most recent Presidential debate shifted the odds markets, as Harris became a 55-45 favorite on the betting site PredictIt and a very slight favorite on Polymarket. It is positive for the risk markets which did not pull back with Harris gaining strength.

Due to balance sheet concerns, the higher-for-longer interest rate environment has been a significant headwind for the relative performance of U.S. small-cap equities.

Nvidia’s strong earnings exceeded expectations, but the stock fell as investors recalibrated their expectations given its high valuation.

Post-Jackson Hole and now post-jobs report, the markets can settle in for a rate cut at next week’s FOMC meeting.

Last week’s big day in the markets and for the economy was on Friday. I characterized the jobs report as being weakish—not disastrous but certainly not strong. The payroll report came in a bit short of expectations with weak lowered revisions to past reports, and although the unemployment rate adjustment was expected, the U-6 unemployment rate, a broader measure of labor underutilization, continued to rise indicating underlying weakness in the job market.

With Labor Day now in the rearview mirror, the money and bond markets will no doubt become laser focused on the September FOMC meeting. Yes, Fed Chair Powell telegraphed that a rate cut is forthcoming, but he also emphasized how monetary policy is still data dependent.

This week’s data reflects the resilience of the U.S. economy. Currently, the economy is holding steady with jobless claims in the 230,000 range and recent inflation data showing stability. Friday’s inflation report was essentially at expectations and indicates that the Federal Reserve (Fed) will make a rate cut of at least 25 basis points (bps) at the September meeting. Whether the cut is 25 or 50 will depend mostly on this week’s employment report.

With his Jackson Hole speech, Federal Reserve Chair Jerome Powell all but promised rate cuts were coming. That’s cool. But it is why that matters.

Is the Japanese yen carry trade back on? Tough question. We think it is, now that the Bank of Japan has toned down its hawkish rhetoric. More on that later. Still, even if we are wrong, the reality is that the market will be talking about the violent ructions of August 2024 for the rest of our careers.

Powell’s remarks in Jackson Hole were more dovish than I anticipated. Powell did not hedge; the clear direction of policy was lowering rates. The focus of the Federal Reserve’s (Fed's) narrative was shifting away from inflation risk to employment.

Since the release of ChatGPT, mega-cap technology companies poised to profit from AI-enhanced software tools or cloud AI-model training capabilities have seen a surge in their stock prices. Yet, many have yet to realize significant AI-driven revenue growth, let alone a substantial impact on their bottom lines.

I have received a lot of blowback from my recommendation that the Federal Reserve (Fed) drop the Fed Runds Rate by 150 basis points (bps) over the next several weeks. Certainly, the data has come in stronger than I (and many others) have anticipated. Particularly surprising was the drop in jobless claims, now nearer to the midpoint of my 200k to 240k range after breaching the upper limit.

The recent U.S. Treasury yield rally is compared to a similar rally in Q4 2023, driven by expectations of a shift in Federal Reserve policy.

The financial markets appear to be rather confident the Fed will finally begin its rate cutting process at the September Federal Open Market Committee meeting, at a minimum. The debate has now shifted as to what this easing cycle will ultimately look like.

Last Monday morning, I tried to shake up the conversation about how far behind the curve the Federal Reserve (Fed) is currently by suggesting an inter-meeting 75 basis points (bps) cut and another 75 bps cut in September.

Never before in my history studying the Federal Reserve (Fed) has the Fed’s policy come into question immediately following the Fed decision.

Once again, the Fed kept rates unchanged at the July FOMC meeting. As a result, the Fed Funds trading range remains in the 5.25%–5.50% band that was introduced exactly a year ago and still resides at a more than 20-year high watermark.

Coming into this earnings season, one of the most intriguing questions was how well the consumer-facing companies would be able to maintain their pricing power. The new algorithm for success is a bit more complicated than “raise prices by x.”

The economic data is coming in very good for markets. Starting with GDP, we observed a modest growth rate of around 2% in the first half of the year. While not spectacular, it’s far from recessionary conditions. This level of growth, with slight inventory accumulation, suggests a stable economic backdrop.

The second quarter began with inflation concerns causing a negative return in April, but improved inflation led to a more hopeful market in May and June, with AI and semiconductor stocks leading.

The big story making the rounds this summer is the spike in the small-cap Russell 2000 since the release of the latest Consumer Price Index (CPI) report, which shocked the market by printing 0.0% month-over-month in June.

The bitcoin halving event in April 2024 reduced the block reward for miners, which is expected to increase bitcoin’s price.

This week's commentary reflects a mixture of political, economic, and technical challenges facing investors. Let’s begin with the political landscape which continues to heavily influence sentiment.

Welcome to the second installment of our new blog series, “Navigating Earnings Season,” where I examine the world of earnings reports from major companies — giants like JP Morgan and Pepsi, as well as niche players in various sectors.

The assassination attempt against former President Trump gave a bump to his odds of becoming president, as they rose from 60% to 67% on Monday morning on Predictit.org.

Heading into the second half of 2024, it appears the markets are no longer focusing on the odds for a recession.

Welcome to our new weekly blog series, “Navigating the Earnings Season.” In this series, I dive into the world of earnings reports from major companies, spanning giants like JP Morgan and Pepsi, as well as niche players in various sectors.

The UST yield curve has been inverted, but there is speculation about when it will “un-invert" and move out of negative territory.

The outlook for the Federal Reserve (Fed) through the first six months of 2024 has been a bit of a roller-coaster ride to say the least. While one could argue the overarching premise has been for rate cuts, it has certainly not been a smooth ride.

The employment report from last Friday, in my view, was weak. Although the headline number came in slightly above expectations, the composition was troublesome, with more than 110k jobs subtracted from the last two months and private sector jobs lagging.

The presidential debate was the big story of the week and revealed a mild market preference for former President Trump. Notably, during the 90 minutes of the debate when there was no other market news, S&P 500 Futures rose 10 points, due to Trump’s business-friendly policies despite his higher-policy unpredictability.

Remember when an inverted yield curve used to predict recessions? Here we are about two years removed from the Treasury yield curve moving into negative territory, and the U.S. economy has yet to move into recession territory. The economy’s resilience has certainly been a surprisingly welcome development and has left many a market participant wondering what happened.

Recent economic data slightly underperformed expectations, though nothing dramatically concerning. Jobless claims dipped just below the 240K level, which is something to watch closely. Claims above this threshold have historically been indicative of labor market weakness, which could influence Federal Reserve (Fed) policies.

Is the labor market okay? Depends on who you ask. The answer to that question should be a strong guidepost for whether you like Consumer Staples relative to the broad market.

Last week’s inflation data was very encouraging, with key indices like the Consumer Price Index and the Producer Price Index coming in below expectations. Stay up to date with the latest commentary from Professor Siegel.