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Macro Minute: Week of September 16, 2024

Written by Wes Johnson on . Posted in Macro Minute.

Last week, I wrote about my current take on the market and economy. This week, I want to talk about a couple of dynamics I see happening in the markets and why I think that is putting some resistance and headwinds on markets. I am mainly talking about transitions and uncertainty. Markets tend to be trending over time. This means by their nature when they begin moving that they tend to continue moving in that direction. When we get changes to the current natural state, markets tend to react poorly, at least for a time. I am going to list a few of the things that are transitioning currently.  

  • The yield curve has been inverted since 2022 until last week. I am not going to go into all the reasons for this or the mechanics of this, but just know that historically a recession has tended to follow it uninverting. 
  • The Federal Reserve is planning on making changes to its interest rate policy. This is a policy shift in that they want to go from restrictive to neutral. This means a likely cutting of interest rates by 2% or more over the next year or two. This is a significant transition. 
  • We have had several economic data releases that have come in weaker than expected. This is a slowing of the economy. Said another way, the economy is still growing currently, but its pace of growth has slowed. You are hearing it said that this is a “growth scare” currently for markets. 

The other thing that is weighing on markets are the elections. This is the largest uncertainty currently for markets. Markets do not like uncertainty. To me, both the transitions and uncertainties of the moment are leading to this pause in markets. We could have another pullback like we had over the summer or we could begin to turn back higher looking through the uncertainties. No one knows for sure, but just remember staying diversified and focusing on the longer term in markets keeps you positioned to weather whatever comes. 

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