Control Panel: "When you come to a fork in the road, take it."

In the wise words of Yogi Berra, “When you come to a fork in the road, take it.”

The Federal Reserve raised the fed funds rate by 0.25% to 5.0% to 5.25%. The market is convinced that the Fed has reached a fork in the road of its rapid increases in the fed funds rate. Opinion is practically unanimous that the Fed will not raise again in June. About 1/3 think that the Fed will begin to cut in July. About 3/4 think the Fed will cut by September. Chair Jerome Powell has said interest rates will remain restrictive so the traders – yet again! – are betting that they know better than Powell what the Fed will do.

The jobs report was stronger than expected. Since the last 2 months were revised downward, it’s possible that this one isn’t accurate but the market is going with it.

Payroll employment rises by 253,000 in April; unemployment rate changes little at 3.4%

Total nonfarm payroll employment rose by 253,000 in April, and the unemployment rate changed little at 3.4 percent. Employment continued to trend up in professional and business services, health care, leisure and hospitality, and social assistance.

05/04/2023 Productivity decreases 2.7% in Q1 2023; unit labor costs increase 6.3% (annual rates)

05/03/2023 March jobless rates down over the year in 208 of 389 metro areas; payroll jobs up in 91

05/02/2023 March job openings decrease; layoffs and discharges increase

04/28/2023 Compensation costs up 1.2% Dec 2022 to Mar 2023 and up 4.8% over the year ending Mar 2023

The strong jobs report with compensation costs rising faster than predicted are inflationary. Ditto the drop in productivity. The Unemployment Level/Job Openings: Total Nonfarm is gradually trending upward but the labor market is still very tight with 0.65 unemployed person for every job opening. The labor force participation rate of prime-age workers has increased to the pre-Covid level. U-1 unemployment is only 3.4%.

Despite the Fed’s tightening and the recent banking crisis, the signs are more inflationary than recessionary. However, the Conference Board’s Index of Leading Economic Indicators has been plunging for months.

Investors Flock to Safety Plays, but Stock ‘FOMO’ Lingers

Recession fears and potential Fed rate cuts muddle the stock market’s outlook

By Eric Wallerstein, The Wall Street Journal, May 7, 2023

Investors are trying to play offense and defense at the same time.

Money managers are shying away from risk, turning to defensive stocks and Treasurys in their hunt for safe places to invest their cash. Yet they appear equally worried about missing out on a potential stock-market rally. …

Although lower interest rates would likely be a boon for stocks, there is a growing conviction on Wall Street that a recession is looming. The panic in the regional banking sector threatens to take down additional banks and slow the economy as well…[end quote]

The Control Panel shows how the market is hesitating at the fork in the road.

Stocks and bonds have stabilized, along with VIX, the USD and gold. The Fear & Greed Index is just a hair above Neutral into Greed. The trade is neutral, neither risk-on nor risk-off.

Usually, it’s not a great idea to invest in stocks just before a recession, especially when the market is still overpriced in bubble territory. Especially when there’s a risk of a government shutdown in the next few weeks due to the debt ceiling.

The METAR for next week is partly sunny. There’s nothing to upset the stability in the short term.



Why were those words ‘wise?’ Context matters.

In 2009 the biography “Yogi Berra: Eternal Yankee” by Allen Barra was published, and it included a wonderfully appealing rationale for Berra’s famous remark. While traveling to Berra’s house one may choose the left fork or the right fork and both are acceptable decisions because both efficiently lead to his house.

The Captain


Isn’t there a CPI number coming out sometime this week? If it’s “too high”, I’m pretty sure all those practically unanimous opinions regarding fed rate changes will likely change.