Over the weekend, Darius joined Andreas Steno Larsen on the Macro Sunday podcast to discuss the resiliency of the U.S. economy, Recession, and more.
In case you missed it, here are three takeaways from the interview you need to know:
1. Despite Most Investors Calling For Recession, The US Economy Is Actually Accelerating
The Q2 GDP advance estimate report, released last week, indicates that GDP increased at a 2.4% annualized pace in the second quarter, surpassing the 2% estimate.
Further, the recent advance report on the latest Durable goods and CapEx data also supports our “Resilient US Economy” theme. Specifically, we saw:
- Durable Goods New Orders accelerated to +32% on a 3-month annualized basis (highest since Sep-20)
- Core Capital Goods New Orders accelerated to 5.7% on a 3-month annualized basis (highest since Aug-22)
- Jobless Claims surprised to the downside, supporting the “Transitory Goldilocks” theme
- Real Personal Consumption Expenditures accelerated to +2.9% on a 3-month annualized basis (highest since Mar-23)
- Nominal Employee Compensation accelerated to 6.2% on a 3-month annualized basis (highest since Sep-22)
Last week’s data suggests an accelerating economy; we urge bears out there to manage risk and #respectthexaxis regarding calls for a recession.
2. US Economic Resiliency Should Continue Into Q4 And Potentially Well Into Q1:
The economy has been and will continue to be resilient for the following reasons:
- Near-record cash on household balance sheets
- Near-record cash on corporate balance sheets
- Private sector income and wealth have outpaced inflation on a structural basis
- Limited credit cycle vulnerabilities
- Limited exposure to the volatile manufacturing sector
- Longer, long and variable lags
- Labor hoarding
We expect the economy to remain strong well into Q4 of 2023 and possibly well into Q1 of 2024. By then, we believe the recession will commence.
3. Investor Positioning Is Incongruent With the Rising Probability of a Soft Landing
Our research tracking aggregated US equities positioning across the various equity instruments suggests that the market is currently net short approximately -7%.
That reading is in the 13th percentile of all historical readings in the time series since 1998, which suggests investors are deeply entrenched in the bearish narrative.
If there is going to be a soft landing in the economy – which we believe is a higher probability than a recession that starts in less than three months – investor positioning is currently and extremely under-positioned for it.
That’s a wrap!
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