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Speculation as Sport Between Econ Data

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As we approach the final trading days of the month and Q1, we see this Hump Day morning’s pre-market futures in the green across the board of major indices. We’re also up over the past five trading days, after a rough start following the latest Fed meeting. The Dow is +210 points at this hour, the S&P 500 +30, the Nasdaq +100 points and the small-cap Russell 2000 +15 points.

Prominent bond investor Jeffrey Gundlach predicted a pending recession in the coming months yesterday, based mostly on the tightening yield curve inversion between 2-year and 10-year bonds. Komal Sri-Kumar suggests a major credit event may be in the offing, which now increases the odds for a “hard landing” into an economic recession in the U.S. this year. Even though we are near the end of interest rate tightening, many see the ticking clock starting the moment the Fed stops raising rates (perhaps as soon as May’s meeting).

So with doom and gloom being forecast, why are market participants keeping so positive? After all, even though we’re climbing up from fairly harsh lows in 2022, we’ve already seen some stupendous gains year to date, including NVIDIA (NVDA - Free Report) +83%, Meta (META - Free Report) +68% and Tesla (TSLA - Free Report) +56%. Is this a disconnect, a willful ignorance and/or another opportunity for market bears to slap down optimists as we saw half a dozen times last year?

The figures on the ground tell the tale of a stolid, well-organized domestic economy, with inventories approaching equilibrium after years of disruption, structural developments in A.I. technology and China’s economy re-joining the rest of the world’s leading economies in a post-pandemic period. Perhaps flashing signals for a recession do exist, but the data is not there yet. It’s for this same reason the Fed may not be finished raising interest rates, no matter what bond traders like Gundlach say about pending doom in the economy.

Meanwhile, we’ll let other data points have their say: Personal Consumption Expenditures (PCE) are out Friday, and a new Employment Situation is due a week from Friday. These numbers precede Q1 earnings season, which begin in earnest the following week. So while we can speculate til the cows come home on a day like today, the proof will (eventually) be in the pudding.

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