In the intricate dance of financial markets, the Federal Reserve’s actions often serve as a barometer, signaling the health of the economy. The latest whispers from financial corridors suggest that if the Fed decides to cut rates in March, it will mark eight months since the last hike—an interval that aligns with the historical average of all previous Fed hike cycles.
Torsten Sløk’s insights cast a shadow on the optimism that briefly emerged at the end of November 2022. Beyond that glimmer, the forward earnings per share (eps) of the S&P index has been on a gradual decline for the past two years. This descent contradicts the narrative of a robust economy, indicating a nuanced reality beneath the surface.
Examining trailing earnings per share, which includes the tech sector, reveals a hesitancy to fully embrace the optimism seen in forward eps. The discrepancy raises questions about the sustainability of the positive outlook and prompts a closer inspection of the factors influencing these contrasting trends.
Adding depth to the analysis, recent shifts in the job market provide additional signals of potential economic cooling. Initial jobless claims witnessed a notable rise of 25,000 to 214,000, surpassing the estimated 200,000. Continuing claims also exceeded expectations, reaching 1,833,000. These numbers collectively hint at a modest cooling in the labor market, further underlining the complexities at play.
As financial analysts closely monitor these indicators, the implications of a potential rate cut in March loom large. The Fed’s decisions reverberate through the financial landscape, reflecting broader economic trends. The current state of affairs raises critical questions about the resilience of the economy, and the signals of trouble may reshape the narrative around the trajectory of financial markets in the months to come.
Sources:
"If the Fed cuts in March, it will be eight months after the last Fed hike, which is exactly the average of all previous Fed hike cycles."
– Torsten Sløk pic.twitter.com/9i7FaAMZJO
— Daily Chartbook (@dailychartbook) January 27, 2024
Great chart from my colleague Manish Kabra via @dailychartbook showing that outside of end-Nov 2022 AI optimism, S&P forward eps has been sliding for the last two years. This is not indicative of a robust economy. Trailing eps, including tech, do not (yet?) match this optimism. pic.twitter.com/dHb5p36BaV
— Albert Edwards (@albertedwards99) January 26, 2024
"Initial jobless claims rose by 25k to 214k (vs. 200k est) while continuing claims also rose by more than expected to 1,833,000, suggesting modest cooling in the labour market".
H/T @dailychartbook pic.twitter.com/RGWCeppFF6
— Koyfin (@KoyfinCharts) January 26, 2024