Conference Call Registration Link: https://trahanmacroresearch.webex.com/weblink/register/r321ef092b3cba52d8cca8797c79328fd

Our 2024 Outlook report and conference call arrives this week, and this chart showing the relationship between interest rates and S&P 500 earnings will have a prominent place in it. There is perhaps no more important core lesson in the Macro Specialist Designation curriculum than this one: patterns in rates become patterns in data after some amount of lag. In this case, we think the bulk of higher interest rates’ impact on corporate profits will hit two years AFTER the start of the Fed’s tightening cycle back in March 2022. The historically large and rapid nature of the rate hikes in 2022 and 2023 should, unfortunately, make for a sudden and painful recession in 2024 and 2025. We have simply never seen the economy shrug off this large of an increase in interest rates without consequences: higher unemployment, negative economic growth, and a prolonged period of poor equity market returns. Even the interest rate cuts on the horizon for the first part of this year will fail to relieve the weight of the cumulative rise in rates on consumers and businesses. We maintain a gloomy outlook for the year ahead.

The Macro Week In Review

The Macro Week Ahead

1. The first week of the year brings the first U.S. employment report. The recent slowing of job growth likely continued in December. Whether it slowed by enough to send the unemployment rate higher depends on whether labor force participation remains close to its cycle peak or begins to trend down.

2. The November survey of job openings and labor turnover (JOLTS) will tell give us a hint as to whether hiring conditions have truly stabilized – quits, hiring and layoffs have been remarkably stable – or whether they continue to weaken further. Another decline in job openings to match the October drop would keep the Fed on the path to easing policy in the first quarter.

3. The ISM Purchasing Managers Index for Manufacturing has historically been a reliable leading indicator of the economy, but over the past year it’s provided more noise than signal. We have been closely watching a few of its subcomponents, including Employment and New Orders, the latter of which is included in the Conference Board’s Leading Economic Indicator (LEI) Index.

4. We are looking for global developed central banks to cut rates fairly aggressively this year. Mainly in response to unexpectedly fast drops in inflation, but eventually because growth is weakening. Consumer price inflation has been falling fast in the Eurozone, which could tempt the ECB to cut rates even sooner than the Fed. Preliminary data for December out this week should show a further deceleration of core inflation after four consecutive large monthly drops.

Three Things We Read This Weekend

Macro Specialist Executive Education

The Macro Specialist Executive Education program is tailored for the busy investment professional. The content covered in two days is an intensive overview of the first level of the Macro Specialist Designation (M²SD) study program, focusing on practical investment techniques and a live, interactive simulation.

The Macro Specialist program has partnered with Macrobond and participants will receive 3-months of free access to Macrobond's state-of-the-art macro data and analytics! Macrobond delivers the world’s most comprehensive source of economic intelligence for financial professionals, together with the analytical tools that help them quickly find, analyze and visualize relevant data.

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• Successfully implement business cycle analysis and macro techniques into your investment process.

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• Understand common human behavioral biases and how they impact investors' decisions—including your own.

• Interpret changes in monetary policy and trends in interest rates to anticipate future developments in markets and the economy.

• Chart key macro data relationships with the appropriate lead/lag times. 

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