Markets have been strong since the start of 2023 but a recession is on the horizon. Or is it already here? Some economic indicators suggest just that:
As I write this blog, markets are up strongly (Invesco QQQ up over 150 bps, the S&P 500 almost 100 bps YTD) on news there may be a deal to avoid the US defaulting on its debt. Let us, for now, ignore the frustration that such an event might even occur, and look at what is actually up this week in US large cap: Tech (Nvidia, Apple, Microsoft), the other tech - I mean Communication Services - (Netflix, Google, Meta), and the other, other tech - sorry, I mean Consumer Discretionary - (Amazon and Tesla). The rest of the index is…fine, with mixed results. What stands out is the narrowness of the market. This has been a hot topic among industry PMs, so I looked into the make-up of markets for the year, around the world, and noticed a few things.
At the same time, debts moving to delinquency increased for credit cards and auto loans. Overall, delinquency rates are still low on an historical basis, but the trend is certainly upward. Consumers are also relying more and more on credit cards, with 35% of American's carrying credit card debt month-to-month2, just as interest rates have spiked. As debts have risen, consumers have spent down their savings, which spiked during the pandemic (fig 3).