Behavioural economists thought that market movement is driven and responsible by narratives – people’s talk and stories. Inflation transitory, data dependent, economic landing, interest rates staying higher for longer ……
Based on unemployment statistics, a late indicator of economic health conditions, which was reported last week, the US economy has been slowed down for at least six months already. However, I think the fact people flip flop between various landing descriptions – no landing, soft landing and hard landing, reflects that the pattern of the economics dynamics is not obvious and strong. The economic growth after COVID-19 has been moderate, and hence the room for slowdown would not be significant.
As the narrative of inflation becomes a story of yesterday, what potential ahead could be economic slowdown, albeit the pace of such slowdown has been subtle. I think the market might want to simply talk down the economic growth to fight for a case of lowering the interest rates faster and deeper. The stock market in the remaining year could be determined by the gap between market expectations of interest rates and what central banks could deliver, starting with the annual economic symposium at Jackson Hole this Friday.