Macro market analysis playlist

December 2024 highlights

Warning: The labor market is in stasis. Layoffs remain low, but hiring activity has plummeted. As a result, activity levels have slowly drifted lower as momentum has flatlined, leading to slowly building slack despite impressive resilience. The labor market may not be as weak as consensus thought just a few short months ago, but risks remain skewed to the downside as the labor side of the Fed’s dual mandate continues to take precedence over inflation.

Paranoid: The no-landing narrative has gained momentum once again in the wake of stronger data, stickier inflation prints, and a looming pro-growth agenda under the incoming Trump administration. But let’s keep that hawkishness in check – core CPI (Consumer Price Index) continues to overstate inflation relative to core PCE (Personal Consumption Expenditures Price Index) and imputed prices and idiosyncratic factors are driving core PCE to overstate stickiness relative to market-based core PCE. Recent prints may look sticky, but under the surface the disinflationary trend remains alive and well.

The Wizard: Lost for many amid the rapidly swinging narrative pendulum and warmer inflation prints is the fact that there remains little evidence of entrenched inflationary pressures in the economy. The productivity boom continues, as growth remains resilient and aggregate hours grow modestly. Doing more with less. Productivity growth remains one of the most powerful forces keeping that disinflationary trend intact.

Into the Void: Given the recent data flow and the progress to date in the Fed’s recalibration process, it’s no surprise that the pace of recalibration is likely to slow as the Fed feels its way to neutral. A December cut is fully baked, and while guidance is likely to shift more hawkish with the potential for the 2025 dot to drift higher, the market is already pricing in both a higher 2025 dot as well as an every-other-meeting cadence in the new year. The pace of recalibration may be set to slow, but more importantly, the easing bias endures.

Time Machine: The US economy continues to grow solidly with dual puts in place to slash left-tail risks: the Powell Put and the Trump Put. Growth may be set to moderate in the near term, but the starting point remains strong and well above growth in the rest of the world. US exceptionalism is alive and well in both a cyclical and secular sense, and while there may be short-term catch-up trades to be made outside the US, the outlook continues to favor a structural overweight to US equities.