H2 Bullish Catalyst… …Tomorrow?
Macro Perspectives
I’ll continue to build on the theme for a good second half.
Tomorrow, Wednesday, we should get another 75 basis points of tightening by the Fed. Om Thursday, we should get confirmation from the
BEA's advanced Q2 GDP report, that the economy was indeed in recession through the first half of the year (a second consecutive quarter of contraction in GDP).
The rate cycle is cause, and the recession is effect.
It was the signaling from the Fed (on rates) that killed the animal spirits in the economy. It was signaling from the Fed (on rates) that led to the inversion of the yield curve in early April (an historic predictor of recession). And it was the signaling from the Fed (on rates) that led to the discounting of recession in the stock market.
That all resulted in the worst first half for stocks in more than 50 years.
So, how does this set up for a good second half?
There are good reasons to believe this week's move by the Fed could/should be the last move in this tightening cycle - that would be a positive catalyst for stocks and the economy.
It would leave the Fed Funds rate at 2.25-2.50% - putting the effective Fed Funds rate right around where the Fed stopped and reversed in July of 2019. Of course, we've already talked about the Fed's clear lack of appetite to make any meaningful adjustment higher to interest rates - in this current tightening cycle - it can't because it exacerbates the domestic debt burden. And it can't because higher U.S. rates creates a flood of capital out of all parts of the world, and into the U.S. dollar.
Both become problems for domestic and global economic stability.
On that note, both debt and the global capital flight conditions are worse today, than in 2019, when the Fed pulled the plug on its tightening campaign: The domestic debt burden relative to GDP is about 25% higher today, and the dollar is about 8% stronger today, compared to the summer of 2019.
Alpha Idea
Bullish Danaher Corporation.
Long at 280.00, Stops below 230.00.
Holding Period ~ 6 months.
