When our model gave a sell signal on the S&P a couple of months ago, the odds of a US recession rose inexorably (“MI2 Chart Point: S&P Sell Signal” 3rd May). Ironically, the reason wasn’t economic activity, which, as we have discussed, is slowing but remains robust. Rather, the reason is the acute level of US financialisation, whereby stocks lead the real economy (“US Recession: Chicken or the Egg” 8th June). Hence, while Powell is focused on real economic data and may believe that the “US Economy is very strong and can handle tighter policy”, stocks can’t, which is the problem. Very simply, courtesy of CEOs’ response to faltering equities, we are all but guaranteed that high beta data, such as the PMIs and especially JOLTS, will start to deteriorate rapidly. Furthermore, while we aren’t there yet, as we discussed in our latest video, once you drop the S&P 30%, history suggests a recession is essentially a done deal (“Growth is Slowing. But are We There Yet?” 19th June).
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