Recent research indicates that momentum profits have significantly diminished since the late 1990s. In addition, analysts suggest it may be time to reevaluate the assumption that small stocks consistently outperform larger counterparts on a risk-adjusted basis. Furthermore, value stocks have substantially lagged behind growth and broad equity benchmarks over the past five years, as highlighted by Russell benchmarks. So, what’s driving these trends? Should we be alarmed? Not particularly.
Still Front End of Recession: A Good ISM Reading Doesn’t Change the Call
Larry Kudlow (National Review) | Oct 3
The unexpectedly robust ISM manufacturing index reading for September might typically suggest that the economy has, at least for the moment, sidestepped a recession. However, following stagnant job growth and real consumer spending in August, which placed the economy on the brink of recession, the ISM figure is the first crucial September indicator. Economist Michael Darda urges caution: within the ISM report, new orders and order backlogs have either stalled or decreased, remaining below the critical 50 threshold that indicates recessionary trouble. Darda contends that weak data from the U.S., the ongoing European crisis, the slowdown in China, and widening corporate credit spreads alongside tense financial conditions all signal a faltering economy and potential declines in the stock market.
The ISM Manufacturing Index rose in September from 50.6 to 51.6, indicating a stronger pace of growth within the manufacturing sector. As an initial gauge of last month’s economic performance, the ISM index provides a glimmer of hope amidst growing fears that a new recession is on the horizon.
The Economic Cycle Research Institute predicts that a new recession is unavoidable. “Early last week, ECRI informed clients that the U.S. economy is indeed on the brink of entering a new recession,” the consultancy declared on Friday. “There is nothing policymakers can do to avert it.”
September proved to be a challenging month for risk assets, yielding the worst performance across major asset classes since the financial crisis peaked in October 2008. Simply put, there was little refuge from the selling pressure. Well, almost none.
● The End of Progress: How Modern Economics Has Failed Us
By Graeme Maxton
Author’s lecture and book summary via publisher, Wiley
We find ourselves in an Age of Endarkenment. Our current economic, social, and political frameworks have not met our needs. Modern economics has failed to fulfill its promises, only serving to widen the gap between the wealthy and the poor. Its failure to allocate resources equitably has pushed the West to the verge of financial disaster. The discipline prioritizes short-term gains over long-term progress, shifting focus from communal concerns to individualism. As a result, the world is burdened with debt, and essential resources are depleting for future generations. Exploitation of science and technology has prioritized profit over societal advancement. The increase in celebrity culture, rampant global greed, and the misconception that information equates to knowledge are stifling our creativity. We are ill-prepared to tackle these pressing issues. Politicians seem increasingly self-serving, manipulating fears, engaging in unjust surveillance, and fostering conflicts for personal gain. The rise of China is poised to exacerbate these challenges… Economist Graeme Maxton analyzes how we arrived at this juncture and what actions we can take.
The bond vigilantes seem absent, as noted by Ronald McKinnon, a Stanford professor. This absence is unusual, he asserts. “Decades past saw tense political disputes over actual or anticipated fiscal deficits lead to sharp interest rate increases—especially for long-term bonds.” However, those observing the Treasury market have noticed that rates have recently declined and continue to do so longer than expected by many seasoned market analysts and traders. In short, we are indeed in extraordinary times… and on this, there’s no disagreement.
According to today’s update from the Bureau of Economic Analysis, the recent decline in economic activity is negatively impacting consumer spending and income levels. Disposable personal income has seen a slight dip in August compared to the previous month—the first reduction in 11 months. Adjusting for inflation, however, the decline is more pronounced at 0.3%, marking the second real monthly drop in succession. Personal consumption expenditures showed some resilience, rising by 0.2% in nominal terms, yet this pace is a significant slowdown compared to last month, with PCE remaining flat when adjusted for inflation.
New jobless claims have notably decreased in the past week, dropping by 37,000 to a seasonally adjusted 391,000. This represents the most significant weekly decline since May, bringing new claims for benefits below the 400,000 threshold for only the second time in 25 weeks. This improvement appears promising and has taken many economists by surprise. However, we should hesitate to label this as the onset of a major recovery.
Kansas City President Thomas Hoenig serves as a cautionary voice in central banking. “We should approach our expectations of monetary policy with great humility,” states Hoenig, who is set to retire this week following a series of eight dissenting votes last year as a FOMC member. Would a tighter monetary policy enforced six months or a year earlier have yielded better macroeconomic results? Let’s be generous and say that’s up for discussion. Nonetheless, the debate continues.
### Conclusion
The articles presented address various economic indicators and their implications for market behavior and consumer confidence. They highlight ongoing challenges, including potential recessions and the performance of different stock categories, ultimately indicating that caution is warranted. Economic resilience appears to be a mixed bag, demanding close monitoring as policymakers and analysts contemplate the path ahead.
