It's jobs week in America.
Later today, we're gonna get ADP.
Now I think they're just messing with it.
We're gonna get AD PS read on private payrolls on
Friday.
We're gonna get the government's employment report.
In case you didn't know, living under a rock somewhere.
Lindsay Piazza is chief economist at SIFO, covering the equity
angle of Steve Parker, head of specialized strategies at JP
Morgan.
A private bank, which would.
I don't want to have a bank that would have
me as a client, but I definitely could not be
represented by.
We'd love to have you Joe Fire.
Lindsay, let me, we haven't talked to you in a
while.
You think the Fed is still on track to cut
at some point this year?
I think right now when we look at inflation, still
very sticky.
The economy's still relatively solid.
The consumer, yes, losing momentum, but still out in the
marketplace spending that's going to be very difficult for the
Fed to justify a rate reduction.
I think they're on track for an eventual reduction, but
eventually increasingly looks like a 2025 event to me.
Well, do you know, you said a lot there though?
I did because you said they're on track for an,
an eventual cut.
And there's a lot of people that say as long
as how doesn't link the slightest bit on a possible
raise, that will be OK.
So that's if the next move, if you can tell
me the next move is a cut, that's that speaks
5 might be 2000.
Well, Chairman Paul has been pretty clear that there's still
an easing bias at the committee that the next move
is like, he doesn't know what the date is, but
he's also set the bar pretty high for a rate
hike.
So we would have to see a meaningful reversal in
inflation meaning likely 6 consecutive months of inflation moving away
from that 2% target before the committee would be willing
to engage and not just delay eventual rate cuts.
You on the same page?
Yeah, I mean our our base case is that we
get a cut in December.
But again, it's it's one cut for the year, a
couple of the start of next year.
But I think what we do agree on is the
fact that the next move is lower and this is
as good as it gets for for cash because that
would be the non consensus viewpoint.
And the big worry that when I think whenever the
market really sells off, I think it's because it's, it's
sinking 7 not it won't be the 70s, but they
could make one mistake about a stop start that we
saw back then.
They could they could have ended too soon that we
might not be restrictive.
We don't know for sure.
There's no signs in really in the economy and maybe
there are.
Are there signs in the economy that it's starting to
bite?
We are restricted no signs in the market.
I think we are seeing loss of momentum.
We have seen this cooling effect and the labor market
is still tight, but less tight than it was the
consumer still spending, but spending at a noticeably reduced pace.
So we are starting to see that loss of momentum
or that second derivative decline, but the the overall rebalancing
is falling well short of expectations, still justifying these relatively
elevated levels of landing.
Not, not a softish, we're not there yet because remember,
part of the soft landing is that eventual return to
price stability and we're still well above the 2% target
with really no confidence yet that we will return to
that disinflationary trend.
NASDAQ new highs up 7%.
Meme stocks back bitcoins over 70,000.
Where are you not seeing sort of excitement and liquidity?
And I just don't see how, how they suddenly people
were telling me that the, the, the risk of a,
every slowdown is equal to the risk of renewed inflation.
And I don't think it's even close.
So, so one, we think this is still a great
environment for stocks.
Fundamentals look good.
Growth is slowing a little bit, but still at a
good pace.
Inflation is easing.
We think that's a really good environment for companies who
are growing earnings at a really strong pace.
One of the things that we look at when it
comes to bubbles or speculation and what you're asking about
is how are profitable companies doing relative to unprofitable companies?
And in some of the past bubbles, what you've seen
is that unprofitable companies tend to outperform significantly.
Over the last year, as we've seen a rally in
the broader market, that hasn't been the case.
Unprofitable companies are actually only up a little bit.
So that's one of the signs that we're watching for
concerns around a bubble and we're not seeing it right
now.
OK.
Friday, what's going to happen?
I think after a disappointing number last month, we were
down to 175.
I think we do inch slightly higher around 185 S,
pretty much in line with what the markets expecting.
Still.
Again we talked about those solid labor market conditions, but
a loss of momentum from where we were in 2022-2023.
On average, the unemployment rate still below that 4% threshold
AT39.
This is now the longest stretch below 4%.
We have to go all the way back to the
1960s.
So we are continuing to see this idea that labor
demand is still outpacing labor supply, perpetuating the notion of
wage pressures and adding further uncertainty to that longer term
outlook for inflation that the Fed is desperate to return
to that 2% target.
Disappointing to whom?
The 175?
A lot of people liked it.
Well, I think you had to define your terms though.
I think it supports the notion that the economy is
still growing, looking for weaker numbers though, aren't we?
We are looking for weaker numbers in terms of supporting
the notion that we are at that sufficiently restrictive level.
But I do think as we've long argued, the Fed
with this hyper focus on achieving the soft landing stopped
short of where we needed to be to ensure a
return to price stability.
Not just sit on the sidelines and hope for it,
but ensure a return back to 2%.
What I think they got to move the goal posts.
They're not getting it too anytime soon.
They'll say, well, we're we're we can see it that
like he's power actually said that once.
We're not going to cut rates now, but it's we're
getting close.
I think the trend is the thing that's most important.
And when it comes to this Friday, what we're focused
on more than the headline number itself is what's happening
with the wage data, because at the end of the
day, there's a lot of signs that inflation pressures are
easing.
The thing that could throw a wrench in that is
if all of a sudden you see a reacceleration in
in the wage data, which I think would cause the
Fed to give a little bit more pause on their
direction of travel, what's the estimate?
And what would concern you?
A 10th of a percent higher than the estimate.
You know, I think I'll defer to Lindsay.
What is the average hourly estimate?
Well, right now we've been averaging right around that 3%
pace.
And that's that's enough to again sustain the consumer.
But when we look at wage pressures, even globally, we
continue to see these surprises to the upside, which may
throw a wrench, not just in terms of the Fed's
longer term pathway, but the ECB and the BOE as
well, which are on the ECB is going to do
it this month.
They are.
But if we see any further surprise to the upside
in terms of wage pressures, that could certainly slow their
progression and grow that timeline between the expected reduction this
week and the next rate reduction by the end of
the year.
I just think watching the Fed might be what slows
the ECB down.
That could be that far ahead of this.
But remember, this global policy divergent, the expected divergent is
likely a reflection of differing economic conditions.
We've seen much slower growth overseas as opposed to here
in the US and that disinflationary trend has been much
more robust overseas than it has here in the US.
So again, I do think that when we look at
these different central banks around the world, there's justification for
easing abroad that we're not seeing here at home.
So you you are fine with with one cut, You're
happy.
You think stocks are going up.
Good environment you've got.
You don't need five or six.
Weaned yourself off of what?
Not not you particularly, but as a Wall Street guy,
you know, it's not all about cuts for you.
Yeah, because we actually think that one cut is a
scenario that reflects a strong fundamental growth environment more so
than a reflection of, you know, potential weakness.
We don't we don't think that this economy necessarily needs
that boost because there's enough natural positive tailwinds that are
going on that are supportive of of markets and of
risk assets.
Are they natural positive tailwinds or is it a lot
of excess from the fiscal side of things?
No, I think you know you, you look, yes, fiscal
has been a big tailwind, but if you look at
the private sector, both corporates and individuals, they're in fantastic
shape both in terms of their balance sheets, in terms
of income growth or earnings growth.
These are really positive signs.
Earnings are what are driving our expectations.
We think over the next, over the course of the
next year, you can get eight to 10% out of
the SP on top of the rally that we've seen.
And that's entirely because of the earnings growth outlook.
We think the story is actually even better outside of
the US because it's companies are able to raise prices
and gouge as we hear constantly, Lindsay, because I mean,
middle and low income consumers are not feeling income growth
and they're not feeling earnings growth.
Well, they are feeling a little earnings growth.
Inflation has come down from peak levels.
So real earnings a couple months positive, they're still below
where they were.
They are.
But I think consumers are feeling the pinch.
They're feeling the pinch of higher prices, higher borrowing costs,
They're becoming more price sensitive and we see this dramatic
shifting of goods and services in their basket month to
month.
But again, the underlying momentum, consumers are still spending in
the marketplace and 2% growth in terms of expenditures, that's
still indicative of a solid message for overall demand.