Most weeks we’ll use a chart that shows two or more series moving in close alignment. Typically, one series might lag or lead the other, or two seemingly independent series are moving in tandem. This week, however, we’re using two series that, intuitively, should move together, but very frequently don’t. It’s the “switching” from positive to negative correlation that is so interesting and important to anyone using macro to make investment decisions. Economic surprises – the degree to which incoming data is coming in above or below consensus forecasts – have a love-hate relationship with equity markets. When the economy is running hot and interest rates are rising, upside surprises to retail sales or job growth are not necessarily welcomed by markets fearful of tighter policy. On the flip side, during periods like the fourth quarter of last year, stocks ripped higher despite economic data coming in above consensus less frequently. As the synchronous movements in the lines on the far-right portion of the graph suggest, the story of 2024 so far has been a return to “Good News is Good News”. As the likely starting date for Fed rate cuts gets pushed out, markets are hanging on to hope that the economy will stay out of recession, and any bit of evidence supporting that is seen as a positive. Of course, the opposite is also true…

The Macro Week In Review

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