The markets had plunged in the wake of “Liberation Day” (a term that is yet another example of the bs that characterizes the Decline), but now, as of mid-May, the S&P 500 has recovered its loss (“… one of the greatest comebacks in market history” – analyst). The Party is on again.
Or seems to be.
Did anything actually change? Not really. Sure, a few “deals” have been made over trade (very few), such as with the UK. But, um, how many more deals to go? And no, the 90-day “pause” with China (in addition to other countries) hardly counts, as there is just some breathing space, during which tariffs have only been lowered (not erased). But damage has already been done, and will take some time to fully undo even if some “amazing deal” is reached with China. The supply chain has been interrupted, and Walmart, as a prominent example, has announced price increases (despite threats from Trump – who can do what, exactly?).
So what appears to have happened is that with the introduction of stiffer-than-expected tariffs, and on an unprecedented scale, there was a kind of acknowledgement of reality. And with the markets so disconnected from the “real economy” (see, for example, the Buffett Indicator), this “shock” was enough to flip optimism into concern and fear. Even if many corporations say their earnings are “strong,” it would appear any return to optimism is suspect. See recent statements from Walmart, in which prices for many items, particularly from China, are expected to rise. Also note recent statements concerning their customers over “stressed behaviors,” with reduced spending in general (somewhat compensated by rise in the number of higher-income customers, itself a data point), particularly over discretionary items. And it is not just Walmart expressing such wariness over the general consumer.
Speaking of the American consumer, the University of Michigan just released a reading on consumer sentiment that should be a wake up call. It shows a further decline, the 5th monthly decline in a row, and is the second to the lowest reading on record. At 50.2 it is a lower reading than what was recorded in 2008 (GFC) and during the 1980s recession. Not much in the way of optimism with a larger percentage of the population.
Such a discrepancy encapsulates the current situation: a large disconnect between the elite and investors with their indefatigable optimism and the many consumers expressing concern and wariness over the economy – and their own fortunes.
“The Party” is really just a name for the hype inculcated by and spewed out from the mainstream media (most of it, anyway) and by government and financial elites. And it is apolitical. We heard about the fantastic economy under Biden (Bidenomics) and we are hearing it now, albeit in a diminished form (such as with talk on a possible avoidance of recession). It serves those in power to “prove” things are swell for the majority and so those in power can take credit. It all sounds so wonderful until the surveys are taken – as were done before the last election and now recently (see University of Michigan). The majority is not buying the wonderfulness.
Currently, any talk of avoiding a recession or even, entering into (outright delusion) a new “bull market,” is taking place as storm clouds continue to gather. And they are gathering:
The tariff situation is far from being settled. And “pauses” as noted do little to assuage the damage that has already occurred.
Some point to the job market, such as not-so-bad first time claim numbers, as a sign that the economy is “solid.” But red flags are mostly being either downplayed or simply ignored. Continuing claims is concerning, and the number of those unemployed 5-14 weeks has increased to 2.27 million in April. Indeed just released stats showing level of hiring is a “fresh low.” Hiring has substantially declined. And then there are the quality of the jobs that are advertised: healthcare for example is not a great proxy for a robust economy.
Speaking of jobs, the reports of layoffs and difficulty finding work in tech and finance have surged of late. These are well-paying jobs. New grads, for example, via social media, are voicing frustration in getting that first job (many of whom have substantial student debt, by the way). And it appears increased usage of AI in major corporations is leading to the elimination of humans in an increasing number of roles.
There are all sorts of other concerning data. Delinquencies are on the rise (credit cards, car loans). Reliance on buy-now-pay-later is also increasing; including for everyday goods such as groceries (this is definitely not a good sign).
But looming over all of this is something that could prove problematic, even catastrophic (in a future that seems to be coming into view) to the US, with the continued increase in the federal deficit. It is being noted that the interest on this debt is increasing at a concerning pace and in the near future could be the largest line item in the federal budget. Didn’t Trump promise to “balance the budget?” (Oh, he did say, “soon”) Well, so much for the pretense of being concerned: that “big beautiful bill” that now has gone to the Senate is alarming, and irresponsible. More will be written about this on this in the next post. For one, the bill means more red ink – a lot more (trillions of $s). The recent downgrade by Moody’s, although in itself not “end of the world,” could and should be a wake up call. It is at least in part the trigger behind the recent increase in long term yields (10 year, and 30 year). One of the storm clouds is the problem for many banks that these yields present (in relation to unrealized losses – more on this later on). And then there is the fallout with elevated mortgage rates. Oh, then there is also the recent retreat of the dollar.
But no matter. What counts – for some (such as the top 10% who own the majority of stocks) – is that assets like stocks continue their ascent. It means things are fine in the economy, right? No need to bring up pesky contrary stats to spoil the party.