Weekly Market Update

Stocks and bonds were largely unchanged on the week as investors digest the start to earnings season and debate the future health of the economy.  Soft landing hopes (shallow or no recession) are supported by a strong labor market, slowing inflation, and a resilient consumer.  Hard landing fears (meaningful recession) are underpinned by the magnitude and velocity of this sharp tightening cycle, the potential for interest rates to remain higher for longer, and expectations that recent bank sector turmoil could cause a tightening of landing standards that squeezes economic growth.  Less than 20% of companies within the S&P 500 have reported first quarter earnings, but results have generally been a bit better than feared.  Next week the Q1 earnings season accelerates with mega cap companies such as Amazon, Microsoft, Alphabet, and Meta reporting and we generally expect market volatility to rise after this week’s unusually tranquil action.

Bipolar Labor Market

In the past we have highlighted a bifurcation within the labor market as a flood of high-profile layoff announcements has surprisingly coincided with a record streak of monthly jobs gains exceeding expectations for twelve consecutive months.  However, while the US economy has added an average of 345K jobs a month over the last year, beneath the surface white collar workers, particularly high earners, appear to be bearing the brunt of the layoffs.  According to a recent Census Bureau survey, the number of Americans in high-income households who are collecting unemployment insurance benefits has surged more than sixfold in the last year (see chart from Bespoke below).  However, on the other end of the spectrum, the number of Americans collecting unemployment making less than $25,000 annually, has declined by almost 40% over the last year.  In each of the past four major US economic contractions, the lowest 20% of earners fared far worse than the average American, so add this to the pile of conflicting economic signals investors have to consider.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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