Discover more from Prometheus Research
Month In Macro
This report is part of our ongoing effort to provide economic and market guidance to our subscribers during a period of historic levels of uncertainty. This note aims to share our research team's internal checkpoint process in evaluating the current state of the economy as it pertains to markets. The pages that follow will have familiar content for those who follow our work but with the added benefit of our connecting the dots across all the economic and financial data our systems use to make portfolio decisions. This report will focus on the economy; future issues will include our market analysis. Our key takeaways are as follows:
Nominal growth remains elevated, while the drivers of real economic growth continue to feel pressure.
Inflationary pressures have shown signs of persistence and entrenchment, suggesting the Fed will have to tighten policy further and longer than markets expect.
Liquidity conditions remain bleak, with little reprieve in our tracking of conditions.
Markets have priced a resurgent probability of rising growth, mainly coming from a bear market rally in equities. Looking under the surface of aggregate equity pricing, we find stagflationary sectors driving these moves. Our systems continue to estimate these are countertrend moves worth fading.
Overall, markets continue to signal that we remain in an environment of stagflationary nominal growth, and our systematic estimates of future growth suggest an eventual transition to stagflation. We believe we are now in the "pain period." What we mean by this is that economic data is likely to remain more resilient than many expect. Those calling for an imminent contraction will likely experience pain in their positioning. Managing risk as the data evolves is paramount in timing a transition. We discuss the logic underlying these conclusions in the report below.