In the last month I have been mostly focused on the micro; company specific news flow and intraday trade setups. It feels like there has been a relative lull in market moving macro news flow in the last couple months. However, there is a good chance that the relative lull is about to come to an end as summer transitions into fall.
Let's take a step back and consider the macro environment for a moment.
Over the weekend, I was surprised to see the 30-year fixed rate mortgage above 8.00%:
Simply stated, it hasn't been this difficult to buy a home in the United States since the 1980s. Meanwhile, this extreme tightening in mortgage lending is occurring against the backdrop of the sharpest decline in the growth rate of M2 Money Supply in history (from extreme expansion to contraction):
We could review dozens of charts that illustrate a hefty tightening of US financial conditions but I will limit it to two charts that perfectly illustrate a strong disinflationary trend that doesn't show any signs of stopping anytime soon:
Disinflation has broadened in recent months and appears well on its way down to 2020 pandemic levels before year end.
Considering the above sharp reversal in core CPI components from high inflation to deflation, it would be unprecedented for either one of the following two things to NOT occur: the economy to avert recession OR the stock market to not at least have a very sharp downturn at some point over the next 12 months.
To be clear, I'm not expecting any major market moves over the next 2-3 weeks. However, I have to wonder how financial markets will escape unscathed during a period in which the US Treasury will continue to dump record debt issuance upon investors, against the backdrop of extremely tight financial conditions. A hotly contested US Presidential Election cycle in 2024 will only serve to create a messier investment backdrop.
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