Control Panel: Economic news

In the Long Run, Investing Is All About the Economy*

*Aside from government debt and the Federal Reserve, that is

By James Mackintosh, The Wall Street Journal, Nov. 3, 2023

Wednesday provided a perfect demonstration of the three most important issues facing markets: the economy, government spending and the Federal Reserve…All three matter. But in the long run it is the economy that matters above all, both directly to bond yields and indirectly by helping determine how much the government borrows and what the Fed does. … [end quote]

Last week, both the stock and bond markets had a bounce from the decline that started in July. The financial press is presenting several reasons why but of course nobody knows for sure.

The U.S. Treasury announced that it would issue $2 billion less in long-dated bonds than expected, and stop expanding issuance after March, earlier than thought. This is a negligible amount in the grand scheme of things. To say that this would significantly reduce the term premium of Treasury debt enough to impact the economy and the stock market doesn’t make sense to me.

The Federal Reserve, as expected, kept the fed funds rate constant last week. This was a non-event since the markets had predicted it. CME futures show that the markets expect no change in the fed funds rate at least until March 2024.

The economic news was exceptionally strong in September, showing real GDP grew 4.5%. The Atlanta Fed nailed this in their GDP Now model, really surprising me since it was much higher than the economists’ consensus. But the latest Atlanta Fed GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2023 is 1.2 percent on November 1, down from 2.3 percent on October 27. After last week’s construction spending release from the US Census Bureau and the Manufacturing ISM Report On Business from the Institute for Supply Management, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth decreased from 3.0 percent and -2.2 percent, respectively, to 1.5 percent and -2.8 percent. This is a huge change.

Economic activity in the services sector expanded in October. In October, the Services PMI® registered 51.8 percent, 1.8 percentage points lower than September reading of 53.6 percent. The services sector is larger than the manufacturing sector and is labor-intensive.
The Manufacturing PMI® registered 46.7 percent in October, 2.3 percentage points lower than the 49 percent recorded in September. The overall manufacturing economy dropped back into contraction after one month of weak expansion preceded by nine months of contraction and a 30-month period of expansion before that. The manufacturing economy is slowing.

The U-3 unemployment rate ticked up to 3.9%, which is still low by historical standards. The Labor Force Participation Rate - 25-54 Yrs. was 83.3%, a slight decline but still near the level of the pre-Covid January 2020 maximum. The total Labor Force Participation Rate is 62.7%, which is below the pre-Covid maximum and reflects many people who retired during the Covid pandemic and did not return to the labor force.

The question on all investors’ minds is whether last week’s bounce is the beginning of a trend change or only noise. The Fear & Greed Index was in Fear, almost to Neutral, an improvement from last week’s Extreme Fear. The trade was suddenly risk-on, as junk bond and stock prices jumped relative to Treasuries, whose prices also rose. (Treasury yields fell.) USD suddenly fell.

The Treasury yield curve fell along its entire length. This is typical behavior just before a recession. The yield curve is almost flat and would be approaching normal if the Fed dropped the fed funds rate as is typical when recessions start.

Oil prices have stabilized but natgas is rising.

The markets appear to be saying that the economy and interest rates are at an inflection point. The economy appears to be slowing, which was predicted many months ago but didn’t happen. The markets appear to be happy about this slowing because that typically results in lower interest rates, both short-term due to the Fed and long-term due to lower demand for borrowing.

But the markets should be careful what they wish for. When inflation began to rise in 2022, the Fed and markets underestimated how bad it could get. When a recession starts it may be nastier than economists expect today.

The METAR for next week is partly sunny. The markets (stock and bond) may build momentum on last week’s upward moves. As always, the METAR is a short-term forecast. It’s just as likely that this move is noise. It’s not established as a trend yet. And it’s always dangerous to bet on rising stock prices at the start of a recession.



Thank you Wendy.

Chewing on it all, and I see general mastication all around METAR.

Once as a newly out of shorts and into trousers young lad I was a guest at a very very highfalutin dinner party. The meat dish was horrifically tough, and I had cut off too big a piece to simply choke it down, and so i chewed and chewed in increasing desperation and misery. A wonderful blue haired woman opposite me, caught my eye, put a piece in her own mouth, chewed it a bit, and then smilingly mumbled to me “Bouncy, is it not?”, showing me how to use a napkin touching my lips to stealthily rid herself of the mess.

Yes, Bouncy, is it not?

david fb


@flyerboys LOL!

Keep chewing or spit it out? That’s the question!



Was the bottom last summer? None of us thought so. Why now believe the bottom won’t come? It is a strange impulse so common to a man born of desperation instead of patience.

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“October is a risky month in the market” said Mark Twain. “The other risky months are March, June, August, January, November, July, December, February, May, April, and August.”

The Captain
quoting from memory


No, it was in October 2022. The S&P is up 25% since the low.



@DrBob2 You are correct. I have been burning the midnight oil. Just glancing at instead of studying the charts.

If the 50 cross the 200 on the spx and compq you can see new lows coming. The issue is waiting to buy to see what happens with the 50s.