29 May CONFLICTING MESSAGES
The bond market is suggesting the economy will slow considerably. Consumer confidence however rose more than expected to the highest level since November as Americans felt the best about current economic conditions in 18 years.
In my view the most compelling aspect of the consumer confidence report was the gap between “jobs are plentiful” and” jobs are difficult” to get. This gap is now at the highest since 2000. Job security is a dominant element in any economic outlook.
What indicator is correct? Rarely is there such a massive disconnect between two indicators.
Historically the bond market is the more accurate indicator but recently its predicative qualities have declined considerably. I would argue this decline is the unintended consequence of massive central bank intervention that has skewed the traditional dynamics.
Change is the only constant. It is the velocity of change however that is frightening. Will the inflationary outlook change overnight causing a surge in yields or will consumer sentiment radically change, the result of some extreme externality?
Some would opine a disconnect does not last long in today’s efficient market. I beg to differ. From firsthand experience, an environment or disconnect can last a lot longer than anyone can rationally expect.
Commenting about yesterday’s market action, equities fell and treasuries rose again on trade and economic fears. Equity volume was anemic but 10 of the 11 S & P 500 sectors did decline.
What will happen today?
Last night the foreign markets were down. London was down 1.28%, Paris down 1.69% and Frankfurt down 1.29%. China was up 0.16%, Japan down 1.21% and Hang Sang down 0.57%.
The Dow should open moderately lower on growth fears, fears stoked by the growing and impending trade war. The 10-year is up 11/32 to yield 2.23%.