Volatility has continued to trend downwards since mid-May, but there is little by the way of complacency amongst investors at this time. Warning shots were fired last week by JP Morgan’s Jamie Dimon, who warned of an economic hurricane, whilst Elon Musk announced plans to cut 10% of Tesla’s workforce, in his own unique way by stating he had a ‘super bad feeling’ about the economy.
In relation to the US economy, there were some interesting takeaways from last week’s data. We have underemployment increasing, job openings at a high, but confidence lower with jobs ‘hard to get’. There are jobs, but perhaps not the right jobs and the US market could be experiencing ‘frictional unemployment’. A better scenario than its stablemate ‘structural unemployment’ but a short term worry as the economy continues to adapt to both the inflation and monetary policy backdrop. The jobs report on Friday embodies the concept that good news can be bad news. The theory goes that the report was good for economy, which means the Fed will continue to tighten, which could keep risk assets under short term pressure.
Whilst we have become accustomed to quick rebounds for equity markets in recent years (Post Q3 2018 and Q1 2020) the structural shift occurring in monetary policy suggests that a sustained period of uncertainty, with the potential for oscillating prices, could be upon us. Maintaining and active, flexible, multi-asset approach remains imperative.
