late day musing

Another day that reinforces the market is NOT expecting a strong economic recovery:

• U.S. Treasury Yields are down again – should be going up if folks thought the economy was going to rip
• Inflation breakevens are down again – Should be going up because a strong economy means higher inflation
• The “Covid-19” trade continues – Predictable growth and Healthcare continue to lead the market with the S&P 500 Financial and Industrial Sectors making a new relative performance low against the S&P 500.

In addition to the market action, we heard from a couple Fed heads:

• Federal Reserve Bank of Minneapolis President Neel Kashkari says the economic recovery after the pandemic will likely be slow and potentially uneven.  He said that based on what we know now, the economic recovery is likely a gradual, muted recovery.
• Federal Reserve Bank of St. Louis President James Bullard expects positive second half 2020 growth, but says keeping the economy in lockdown for longer than 90-120 days risks triggering bankruptcies and “a Depression-scale recession.”

We have been waiting for a sign from the credit markets and economic sector performance to expect stronger growth, but for now they continue to signal more of what we have already seen…a much slower economic recovery.

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