(New York)

Here is a data signal most of the market is not paying attention to when it comes to recession forecasting: nationwide capital expenditure, or Capex. Morgan Stanley’s index of capex has shrunk to its lowest level in two years, as the high from the Trump tax cuts wears off for companies and they tighten purse strings. Capex growth is likely to weaken from 11% last year to just 3% this year. According to the deputy CIO of State Street, “Low capex growth is very worrying … You’re starting to see the trade tensions and the macro growth concerns play out in business confidence — companies won’t open a new factory if they think we’re on the cusp of a recession”.

FINSUM: This is a worrying sign but not wholly unexpected given the waning benefits of the tax cuts. However, even though this is expected, it does not mean it won’t hurt the economy.

(New York)

Don’t let the cooling of the trade war between the US and China fool you, the markets are not in a good position, at least that is the position of Bank of America. The bank thinks there won’t be a deal between Washington and Beijing until the US market feels real pain. They think the looming Q3 correction will be the stimulus that gets a deal done because Trump operates under a “no pain, no deal” paradigm. “The markets are likely to view the summit as a modest positive in the short run. But stepping back, we see several reasons for concern”, says Bank of America.

FINSUM: The “no pain, no deal” concept makes a lot of sense to us. The bigger question, though, is what would cause the pain because markets certainly aren’t hurting from the threat of a trade war. Maybe a big earnings miss? (See below)

(New York)

Earnings recessions don’t always hurt that much, but they don’t help. Just look at the 2015-2016 period, when earnings didn’t perform well. Markets didn’t lose much, but they were mostly flat. Now we are re-entering that paradigm, as many companies are cutting earnings and it looks like the first earnings recession in three years is coming. Earnings are very likely to fall in the second quarter, with average analyst estimates calling for a nearly 3% decline across the board. So far, 20 of the S&P 500’s companies have reported and the average earnings fall has been 15%.

FINSUM: A bigger than expected decline in earnings could seriously change the risk-reward outlook of markets. This seems like an important risk right now.

(New York)

A year ago, the FAANGs were flying high. In the previous twelve months they had risen 52% against the market’s 13% growth. The group of tech stocks has since suffered, underperforming the S&P 500 in the last year. In fact, a group of very conservative stocks have been leading the way. Call them the “WPPCK” (not as catchy, we know), which is comprised of Walmart, Procter & Gamble, Pepsico, Costco, and Coca-Cola. This group has risen 27.1% in the last year versus the S&P 500’s 7.2% gain and the FAANGs’ 5.7%.

FINSUM: It is hard to imagine a less flashy group of stocks than these, but they have been strong and steady, which seems like a good formula for this unpredictable market.

(Washington)

It is no secret that Trump is a critic of the current Federal Reserve. He has frequently complained about Powell and wishes the Fed would take a more dovish stance. Well, he took a step towards making that dovish position a reality this week as he has just appointed two notable doves to the Fed. One is Judy Shelton, an economic adviser to his 2016 campaign, who will now be on the Fed’s board. The other is Christopher Waller, who will be the head of research at the St. Louis Fed. Shelton has numerous times expressed extremely dovish views and has said she does not like the Fed’s way of setting rates and would instead prefer a market-set rate.

FINSUM: Shelton’s views are pretty revolutionary, so it seems like she could really shake things up.