Previous Research Nifty500: Sectorial Outlooks May 2023
With the S&P 500 up 10% year-to-date, the calls for a new bull market have grown louder. Some reputed macro firms have already flipped and become increasingly bullish on the market, completely discounting the possibility of a recession. However, there are several parameters of the S&P 500 that cast doubt on this bullish sentiment, particularly the market breadth and investor margin debt.
It is worth noting that the equity index and margin debt typically move in tandem. When the bottom of a downturn is reached, margin debt tends to expand rapidly, indicating a market consensus that a bottom has been reached. In essence, the market bottoms when everyone believes it has hit rock bottom.
Despite the significant bounce in markets since the lows of October 2022, the corresponding margin debt has not expanded. This gives us reason to believe that this may not be the start of a new bull market. Unless we witness a substantial increase in margin debt, it would be prudent to avoid excessive allocation to equities, especially within the index.
Overall, while the S&P 500’s recent performance has sparked optimism for a new bull market, it is crucial to consider the broader picture. We haven’t felt the impact of higher rates on the economy yet which is highly unusual.
Can US Skip the Recession?
The most recent labor market data paints a concerning picture of overall weakness. Typically, the effects of changes in interest rates take some time to ripple through the economy. Historically, this lag has been around 18 months. Interestingly, this pattern held true as, precisely 18 months after the initial rate hike in March 2022, we are now witnessing the visible impact this month. The Federal Reserve consistently raised rates throughout 2022, suggesting that the consequences of these consecutive hikes will continue to materialize as the year unfolds.
SP500 & Inflation Update: Aug 2023
Airtham Macro Research: The July headline CPI release followed predictions of a slight increase, yet the actual magnitude was less significant than anticipated. This outcome sparked optimism within the market, leading to a surge in activity and speculation of a potential pause in rate hikes. However, this optimistic rally was short-lived as market participants quickly adjusted their expectations. The weaker-than-expected inflation reading meant a potential decline in economic demand. This perspective gains support from jobless claims data released a few days back, that showed claims rising to a 1.5-year high. Consequently, there's now a debate over whether further inflation reduction is beneficial or detrimental to the markets.
What’s Happening to US Tax Receipts?
One of the most crucial indicators for gauging the health of a country lies in its government tax receipts. When tax receipts rise in tandem with economic growth, it signals a thriving nation. Conversely, economic downturns often witness an accompanying decline in tax receipts. However, what's truly concerning is when tax receipts decline despite a healthy and expanding economy.