Andrew Harnett from Bank of America says equity breadth on the S&P 500 is the worst since the depths of the global financial crisis in March 2009. Nvidia alone is holding up the universe.
His advice: “Buy bonds in the second half”; sell equities and credit as soon as the Fed starts to cut rates. Yes, the world is choking on the scale of bond issuance, but cyclical flight to safe havens trumps structural worries about solvency in a recession.
America’s economic slowdown has crept up on the world. Labour economists have been warning for months that the US jobs market is breaking down. The trouble always starts with millions of ‘marginally attached’ workers, mostly off the radar screen.
Revised data from the Bureau of Economic Analysis now suggests that the labour specialists were right.
The rise in salaries and wages in the first quarter was less than half earlier estimates. The annual rate of economic growth has fallen from 4.8pc, to 3.4pc, to 1.3pc, over the last three quarters.
April was undoubtedly even weaker. The ISM manufacturing index fell further into contraction in May. Spending in restaurants has begun to buckle too.
Mr Hollenhorst said the hiring rate is now the weakest for a decade. Firms are still hoarding labour – on lower hours – but once confidence snaps and the lay-offs start in earnest, the process takes on a life of its own. “The history of economic cycles suggests that this will not be smooth,” he said.
Simon Ward, from Janus Henderson, says there are two extra monetary effects to worry about. The US Treasury has cut reliance on short-term bills to fund the deficit, and this slows money growth.
The Treasury has also been draining liquidity by rebuilding its cash balance at the Fed. Both effects are likely to turn “significantly contractionary” with the usual lag.
The great American boom ended some time ago despite a turbo-blast from the Inflation Reduction Act.
The record does not look so good when you adjust for immigration. Real disposable income per capita is down 0.5pc over the last year. That may explain why so many voters are in such a bad mood.