I’ve got to say, I’m usually skeptical of the phrase «This time is different.» More often than not, it’s not. But the persistent strength of the U.S. economy, particularly the job market, is making me think twice. Maybe this time really is different.
Unemployment benefits
Take a look at this chart of the four-week average of U.S. unemployment benefits. Since late 2022, we’ve seen a few blips that looked like the job market might be cooling off. But, nope – unemployment claims have dipped to their lowest since early last year. So those were false alarms.
But it’s not just unemployment benefits that are bucking the trend. The pandemic, the economic freeze, and the chaos that followed have all thrown us some curveballs. We’re seeing signs that the so-called «recession» might have already come and gone in various areas, like personal income, government aid, housing investments, my own earnings barometer, and even copper prices.
Stock markets seem to be buying into this narrative of recovery after a slowdown. Remember, the U.S. GDP shrank in the first half of 2022, but the NBER didn’t call it a recession. And now, with lower interest rates possibly on the way, there’s a sense of optimism.
Cheering too soon
But let’s not get ahead of ourselves. The massive stimulus from central banks and governments has been like a strong painkiller, softening the blow from big interest rate hikes. Typically, it takes a couple of years for interest rate increases to really hit the job market. We’re not quite there yet – the Fed’s first rate hike was in March 2021.
The good news? Central banks, including the Fed, are almost at the point of cutting rates again. So if the economy does slow down, they’re ready to jump in. Plus, they’re tackling debt sustainability, which is a nice side benefit. This all points to the possibility of a continued market upswing, a melt-up. Whether that fully justifies current stock market optimism, well, I’m not so sure.
Jeroen Blokland, founder of True Insights, is a sharp guy with a knack for multi-asset portfolios. He used to head up multi-assets at Robeco, and his weekly chart insights on Investment Officer are always a must-read.