That anxious hum among Wall Street exectutives is getting louder.
U.S. stock index futures are pointing south, led by technology on nonfarm payroll data day. After crushing remote-work hopes of Tesla workers, CEO Elon Musk now reportedly wants a 10% headcount cut due to a “super bad feeling” about the economy.
It’s been a week. Comments from the world’s wealthiest man’s follows America’s biggest banker, JPM Morgan Chase’s JPM Jamie Morgan, who warned of an “economic hurricane” to come and now BlackRock’s BLK CEO Larry Fink has told Bloomberg to expect elevated inflation for years, along with “bouts of fear” creating more market volatility.
Our call of the day says these honchos are not worried enough. A “deep recession” should start this quarter or early in the next, with U.S. GDP estimates tanking, but “still too high,” says Mike “Mish” Shedlock, investment advisor for SitkaPacific Capital Management.
In his Mish Talk blog, he points to the Atlanta Fed’s GDPNow Forecast that models for second-quarter GDP, which is currently at 1.3%, down from 1.9% on May 27. He says watch real final sales, the “true bottom for the economy,” which is holding at a “very respectable 2.9%.
Atlanta Fed, Mish
“Real final sales was negative in the first quarter and I expect a repeat in the second quarter because I do not believe retail sales will hold up,” he said, adding that disastrous car sales haven’t helped.
What does all this gloom mean for invetors?
Note that despite Dimon’s grim view, his top quant strategist has been an unswerving bull on the stock market. We’ll end this on some hopeful noises from Putnam Investment’s chief investment officer, Shep Perkins, who told clients in a note recently that he doesn’t see a”stagnant 70″ episode that led to flat markets for 10 years.
While high inflation will probably stick around, investors these days have an advantage with regards to the makeup of the stock market, said Perkins, in a note. Looking at price/earnings multiples during inflationary periods since 1900, he said earnings growth tended to hold up unless things got really bad.
Putnam
And equity returns still managed to hold up:
Putnam
The last point that Perkins makes is that this is not your parent’s stock market.
“For example, in the 1970s, capital-intensive, cyclical companies in industries such
as energy, materials, and industrials made up a significant portion of the index. Today, much more of the S&P consists of high-quality, fast-growing companies that tend to be resilient in times of economic turbulence,” he said.
Bigger risks for companies these days is “technological obsolescence.” Companies in the 1970s also were more cyclical and used more leverage. “Today’s S&P leaders — higher-margin and capital-list businesses in sectors such as technology, communications and health care — are likely to fetch higher P/E multiples than the S&P leaders of the past.”
“Based on history, if we do sustain an inflation rate of 7% or more for the next few years, equities are in for a challenge. However, in our view, it’s more likely that inflation will slow as demand slows,” said Perkins.
Read: ‘A game of catch and release’: Are recent stock-market rallies the beginning of a bull run
The buzz
U.S. nonfarm payrolls for May due Friday are expected to show a jobs gain of 328,000 from 428,000 in April, with average hourly earnings creeping up to 0.4% from 0.3%. The data is due the stock market open, with the Institute for Supply Management’s services sector index at 10 a.m. Eastern.
At 10:30 a.m. Eastern, Fed Vice Chair Lael Brainard will speak, a day after she poured cold water on a ‘pause’ in interest-rate hikes in September.
Tesla TSLA stock is down about 3.5% in premarket. Musk also sparred on Twitter with the CEO of Aussie tech group Atlassian, who said the EV maker’s apparent work-from-home views are straight out of the 1950s.
Athleisure wear maker Lululemon LULU stock is up after better-than-expected sales, despite inflation, supply-chain disruptions. Software security group Crowdstrike CRWD didn’t get a lift from forecast-beating results or higher guidance.
Crytpocurrency exchange Coinbase COIN announced an indefinite freeze on hiring and will rescind “a number” of already accepted job offers. That’s a day after the billionaire Winklevoss twins announced cuts at their own crypto firm, Gemini.
Walmart WMT said it will build four new high-tech fulfillment centers, one 45 minutes from Chicago, which will provide 1,000 new jobs.
President Joe Biden wants to restore a ban on selling assault-style weapons and high-capacity magazines.
The markets
Uncredited
U.S. stock index futures ES00 YM00 ES00 are lower, with bond yields BX:TMUBMUSD10Y flat and oil prices CL BRN00 also down. Bitcoin BTCUSD is back up over $30,000.
The chart
The Market Ear blog shares this chart from Tier1Alpha that shows the rise and fall of Cathie Wood’s ARK Innovation ETF ARKK against the dot-com bubble of 20 years ago.
Tier1Alpha/Market Ear
“ARKK’s dot.com analogy chart has continued to work very well. Do we start to chase dogs like ARKK if this squeeze becomes more violent to the upside? It would be almost too perfect,” writes Market Ear.
The tickers
These were the top-searched tickes on MarketWatch as of 6 a.m. Eastern Time.
Random reads
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