As central banks resume easing in 2024, a bear market bottom should follow months later. Waiting for cyclical lows may feel challenging, but not waiting ends much worse.
Here at the end of 2023, confidence in the economy and the financial markets is a lot higher than it was at this time a year ago. Is that confidence justified? Or will 2024 deliver a rude awakening? Here is a direct video link.
Erik Townsend and Patrick Ceresna welcome ECRI’s Lakshman Achuthan to MacroVoices: “The revival in growth that everyone’s kind of banking on, is not here. The slowdown continues.”
Here is a direct audio link.
Further to the discussion. Unemployment lags the Fed hiking cycle and typically accelerates in the months after the Fed pauses (i.e., anytime now). Central banks go back to easing as unemployment claims move higher (in orange below since 1965), and that’s when equity bear markets intensify (S&P 500 in blue). Chart courtesy of John Hussman.
As we head into the most-harangued shopping weeks of the year, it is important to understand that spending patterns are strongly tied to the value of homes, particularly among the so-called upper-middle-class households (defined as income over 100k).
Now that interest rates have normalized and home prices are falling, even those still fully employed are pulling back on spending–and the trend will intensify with layoffs. See Brands Catering to the upper middle class are struggling:
Affluent shoppers often have an outsized impact on shifts in consumer spending because they have money to splurge when times are good but are quicker than the wealthy to pull back when feeling pressured. So a hit to the brands, retailers and shopping malls that cater to richer Americans foreshadows potential weakness ahead for the US economy.
As a proxy for high-income spending, Bloomberg created an affluence index of 30 large retailers and brands across 10 categories — spanning clothing, jewelry and electronics — with average transaction values above their peer group….The retailers and brands in the index experienced a deterioration in sales since January that recently deepened, according to Bloomberg Second Measure, which tracks anonymous US credit- and debit card transactions. Sales for the three-month period from August to October declined at 70% of the companies. The median change in sales reflected a 14% drop — the worst performance in two years.
In more proof that debt-funded spending is financially deleterious in the medium and longer run, following two years of record government handouts, households outside the wealthiest quintile have less cash now than they did when the pandemic began (latest Federal Reserve study of household finances).
And amid years of financial market manipulation and risk-maximizing FOMO (fear of missing out), the average retirement account balance has increased by just $1200 over the past five years.
Now, a rising share of workers are turning to retirement account withdrawals and loans to try and make ends meet. See, Americans are Pulling savings from their Retirement Accounts to pay bills.
