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- The hit that equities took last week will not lead into a recession and although the slide may continue into next week, especially if CPI and PPI show negative prints, certain high-risk assets have shown significantly reduced downside beta relative to the S&P 500, suggesting harder hit assets are on the verge of rebound.
- The obsession with payroll data seems to be overshadowing every other data point that came in last week, which showed a clear firming of economic activity. ISM data leaned stronger, productivity came in higher than expected with unit labor costs falling below expectations, and the headline unemployment rate fell.
- For equity prices to stabilize and reestablish the bull trend, we want to see a rebound, or at least sideways action, in commodities and interest rates. Markets do not like volatility in either asset class, which places pressure on equities.
- Next week should see CPI below or at expectations (I think .1% month over month is more likely for headline CPI). A lower CPI reading might raise the probability of a 50-basis point cut from the Fed, but 25 bps is guaranteed.
