{"id":207382,"date":"2025-08-28T08:08:55","date_gmt":"2025-08-28T08:08:55","guid":{"rendered":"https:\/\/ibkrcampus.eu\/campus\/?p=207382"},"modified":"2025-08-29T11:30:37","modified_gmt":"2025-08-29T11:30:37","slug":"above-the-noise-positive-signs-for-us-economy-and-markets","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.eu\/campus\/traders-insight\/securities\/macro\/above-the-noise-positive-signs-for-us-economy-and-markets\/","title":{"rendered":"Above the Noise: Positive signs for US economy and markets"},"content":{"rendered":"\n

Originally Posted 26 August 2025 \u2013 Above the Noise: Positive signs for US economy and markets<\/a><\/p>\n\n\n\n

<\/p>\n\n\n\n

\"Woman<\/figure>\n\n\n\n

Key takeaways<\/h2>\n\n\n\n

US economy<\/h3>\n\n\n\n

Only 9.5% of senior loan officers report tightening standards, far below the 50%-60% typical recession levels.<\/p>\n\n\n\n

US markets<\/h3>\n\n\n\n

More than half of the NYSE companies are trading above their 200-day moving averages, just above the long-term norm.<\/p>\n\n\n\n

Job reports<\/h3>\n\n\n\n

These are less about pinpoint precision and more about capturing the overall direction of the economy and labor market.<\/p>\n\n\n\n

Why do people keep asking me whether I think 100 unarmed humans could defeat a fully grown silverback gorilla in a fight to the death? I have so many follow-up questions. First: Do I get to choose the other 99 humans? Second: Are there any rules, or is this an old-school World Wrestling Federation no-holds-barred scenario? Third: Why would I want to provoke a typically calm and gentle animal?<\/p>\n\n\n\n

I\u2019m not sure where the social media consensus has landed, but personally, I\u2019d rather not test an animal that can lift more than 1,800 pounds and bite with a force of 1,300 PSI. Yes, gorillas rarely use their strength aggressively, but I\u2019d prefer to keep it that way.<\/p>\n\n\n\n

It\u2019s analogous to asking whether the $30 trillion US gorilla of an economy1<\/a><\/sup> can withstand policymakers armed with tariffs, \u201ctoo-late\u201d monetary policy, regressive fiscal bills, and \u201crigged\u201d job numbers, to name a few. Personally, I would have preferred we left the docile early-2025 US economy alone. Growth was resilient.2<\/a><\/sup> Inflation<\/a> was stable.3<\/a><\/sup> Let sleeping giants lie, as they say.<\/p>\n\n\n\n

Instead, the contest has begun. The debate is viral.<\/p>\n\n\n\n

And once again, I\u2019m going with the gorilla.<\/p>\n\n\n\n

It may be confirmation bias, but\u2026<\/strong><\/h2>\n\n\n\n

\u2026 the usual \u201ccanaries in the coal mine\u201d for the US economy aren\u2019t flapping, wheezing, or falling off their perch. (Apologies for the back-to-back animal metaphors.) A look at bank lending standards and credit spreads reveals little cause for alarm. Only 9.5% of senior loan officers report tightening standards, far below the 50%-60% levels typically seen during recessions<\/a>.4<\/a> <\/sup>Meanwhile, high yield credit spreads are trading roughly 200 basis points below their long-term average,5<\/a><\/sup> which suggests investors are confident enough in the economy to continue to lend money to businesses with below-investment grade ratings.<\/p>\n\n\n\n

In short, the canaries are still singing.<\/p>\n\n\n\n

\"Bond<\/figure>\n\n\n\n

Past performance does not guarantee future results. <\/strong> <\/p>\n\n\n\n

Since you asked (part 1)<\/strong><\/h2>\n\n\n\n

Q: Isn\u2019t it a bad sign for the economy and financial markets that only a handful of companies are driving returns?<\/strong><\/h3>\n\n\n\n

A: That\u2019s so 2024! Last year, the so-called Magnificent 7 soared 67.34%, while the other 493 companies in the S&P 500 managed just 13.59%.6<\/a><\/sup> It was a narrow rally, no doubt.<\/p>\n\n\n\n

This year, the story\u2019s different. The other 493 were outpacing the Magnificent 7 for much of the year and remained neck-and-neck through July 31.7<\/a><\/sup> What\u2019s more, more than half of the companies listed on the NYSE are trading above their 200-day moving averages, slightly above the long-term norm.8<\/a><\/sup><\/p>\n\n\n\n

It\u2019s not the broadest advance we\u2019ve ever seen, but it\u2019s a far cry from last year\u2019s top heavy market.<\/p>\n\n\n\n

Q: What about small-cap stocks? Why haven\u2019t they been participating in the market\u2019s advance?<\/strong><\/h3>\n\n\n\n

A: That\u2019s correct, they\u2019ve been largely sitting out the rally. As of mid-August, the S&P Small Cap 600 Index has returned just 0.04% year-to-date.9<\/a><\/sup> Perhaps small caps will outperform when there\u2019s a catalyst such as easier monetary policy and\/or accelerating economic growth. So far, neither has materialized in 2025, but may be forthcoming.<\/p>\n\n\n\n

Since you asked (part 2)<\/strong><\/h2>\n\n\n\n

Q: What are you watching that could potentially change your optimistic outlook?<\/strong><\/h3>\n\n\n\n

A: Every cycle, I find myself obsessively focused on a different indicator. In 2008 it was the interbank lending spread. In 2020, it was social mobility metrics, followed by back-to-work barometers, like the number of employees swiping security cards to enter office buildings. This time, it\u2019s the 3-year US Treasury inflation breakeven, which reflects the bond<\/a> market\u2019s expectation for inflation over the next three years. Since early May 2025, it has averaged 2.50%.10<\/a><\/sup> That\u2019s price stability, at least where I come from, and it suggests the Federal Reserve<\/a> (Fed) has room to lower interest rates<\/a>. If the breakeven were to meaningfully break above that average, I\u2019d be more concerned about the cycle.<\/p>\n\n\n\n

It was said<\/strong><\/h2>\n\n\n\n

“Until it is corrected, the BLS (Bureau of Labor Statistics) should suspend issuing the monthly job reports but keep publishing the more accurate, though less timely, quarterly data.”<\/p>\n\n\n\n

\u2014 E.J. Antoni, Trump\u2019s nominee to lead the BLS<\/p>\n\n\n\n

That may not fly. The BLS is legally required to publish employment statistics at least once each month. This requirement is codified in 29 U.S. Code \u00a7 2, which states:<\/p>\n\n\n\n

\u201c<\/em>The Bureau of Labor Statistics shall also collect, collate, report, and publish at least once each month full and complete statistics of the volume of and changes in employment, as indicated by the number of persons employed, the total wages paid, and the total hours of employment\u2026\u201d<\/em><\/p>\n\n\n\n

As for me, I\u2019ll be watching the ADP National Employment Report more closely than I had in the past. It\u2019s true that the BLS report offers a broader view of employment, because it includes government hiring. ADP focuses solely on the private sector. Still, the rolling six-month correlation between the two is remarkably strong.11<\/a><\/sup> The reality is that these indicators are less about pinpoint precision and more about capturing the overall direction of the economy and the labor market. What matters most is choosing an indicator that resonates with you and sticking with it. The challenge arises when investors jump between data sets in search of confirmation for preexisting biases.<\/p>\n\n\n\n

Charted territory<\/strong><\/h2>\n\n\n\n

The US dollar has declined by 9.5% this year against a basket of its largest trading partners.12<\/a><\/sup> The currency had been relatively range bound for much of the summer but is likely to continue to moderate given its lofty valuation13<\/a><\/sup> and the likelihood that the growth and interest rate differential between the US and the rest of the world will narrow.<\/p>\n\n\n\n

Among the best-performing asset classes during periods of US dollar decline are \u2014 not surprisingly \u2014 emerging market and developed market stocks as well as commodities and non-US bonds.14<\/a><\/sup><\/p>\n\n\n\n

\"Non-US<\/figure>\n\n\n\n

Phone a friend<\/strong><\/h2>\n\n\n\n

I reached out to Justin Livengood, Senior Portfolio Manager of Invesco\u2019s Mid Cap Growth strategy, to assess his view of the recent pickup in initial public offerings (IPOs). Here are a couple of highlights from his response:<\/p>\n\n\n\n