Insights on Recessionary Signals and Market Optimism | Episode 079 | 12-01-2023

In this episode of Markets with Megan, Chief Investment Officer, Megan Horneman discusses the current economic landscape. Megan focuses on the persistent contraction in the ISM Manufacturing Index, signaling potential recessionary conditions. Despite economic concerns, markets are rallying due to comments from Federal Reserve Chairman Jerome Powell, hinting at a more dovish stance in 2024. Megan suggests against over-optimism, citing ongoing inflation issues and the Fed's commitment to avoiding its resurgence. Stay tuned for next week's insights, featuring crucial economic data such as the ISM services report and the monthly payroll report. 

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today with our regular segment of Markets. With Megan, we're going to talk about a couple things that have unfolded today. The first thing is the ISM Manufacturing Index. This is a gauge of the manufacturing sector in the United States. This has been in contraction territory all year. We're still in contraction territory and that means it's a level below 50, typically signals that we're in some recessionary conditions in the manufacturing arena. Just looking at some of the details in this report, all of the components are in contraction territory, except inventories. That's basically sitting at that 50 level Again. Bad news from an economic standpoint.

But the markets are rallying today because we got comments out of Federal Reserve Chairman Jerome Powell. He made it very clear that rate cuts are not anywhere in their discussion or on the horizon, but his comment about their risk of overtightening or under-tightening becoming more balanced has markets expecting that the Fed is getting much more dovish, that there will be rate cuts in 2024. We've seen quite a nice rally in the equity markets and we've also seen pretty big drop in interest rates as well. The short-term interest rates of the two-year yield is down more than 10 basis points just today alone. Again, I think that the market's over-reading his comments and getting a little too optimistic about what can happen in 2024.

We still have an inflation issue. It's going in the right direction, but that still is an issue, and they're making it clear that they can't risk reigniting inflation or unraveling everything that they've done thus far. That's all we have today. Join us next week. We'll have some more economic data coming out. It's a big week with ISM services and then finishing out the week with the monthly payroll report. That's all we have. If you have any questions or comments, please feel free to reach out to podcast at Verdence dot com. Thank you.