Stock and GDP Outlook, for Week Ending 11/24/2023
Reason for Thanks
Stock prices and the mean expected NGDP growth rate rose yet again last week, as market volatility, Treasury yields, and oil prices continued to fall. Inflation expectations remain below the Fed’s 2% target, in core PCE terms, with the Fed Funds futures market certain that rates will be held steady when the FOMC meets next month.
As I’ve argued for several weeks now, citing a rather large amount of evidence, there aren’t many signs that the economy is expected to continue running hot. For example, the S&P 500 is still near its pre-pandemic growth trend.
This is despite NGDP remaining above its pre-pandemic growth path.
However, real GDP has continued running below its pre-pandemic growth path.
Using 10-year pre-pandemic baselines do not change these basic facts. Should this shortfall in real GDP undermine confidence that the S&P 500 can continue along this growth path?
That raises the question about whether RGDP will ever catch up to its prior trend, and if not, what the implications are for sustainable growth. Productivity has been picking up in recent quarters, but the trend is still too new to draw meaningful conclusions.
And even if RGDP does reach it’s trend growth path again, will it be due to a sustainable recovery, or temporary AI-related productivity boom?
Using forward-looking data, all I can say for now is that the economy seems to be on roughly a sustainable path, in the long-run. Again, inflation expectations are roughly where one would expect, if not lower, if growth was expected to be sustained.
As for the slowdown expected next year, perhaps the best preview for that continues to be the Fed Funds futures market.
The slowdown is still expected to begin in earnest by the end of the first half of next year. We can be thankful that markets still aren’t predicting a significant recession.
Happy Thanksgiving!
Note: This post, as is the case with all my posts, should not be construed as offering investment advice. Such advice should be tailored to the individual investor by qualified professionals who, ideally, are fiduciaries.
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