=== MARKET IMPLICATIONS === - Monetary Policy: The persistent soft labor market and reliance on "Easy Street policies" imply a continued dovish stance from the central bank. This reduces the likelihood of rate hikes and potentially paves the way for easing, generally supporting long-duration assets. - Consumer Spending: Current elevated consumer spending is fragile, as it relies on dissaving and wealth effects rather than robust income growth. This makes it vulnerable to shifts in asset prices or consumer confidence, despite the expected support from "Easy Street policies." - Inflation: The "frozen" labor market with soft income growth suggests limited wage-push inflationary pressures, reinforcing the dovish monetary policy outlook. - Equities: The explicit statement that recent weak equity action is not a "macro data story" suggests that investors should look beyond broad economic indicators for immediate equity market drivers, focusing instead on factors like earnings, technicals, or specific company news. - Fixed Income/FX: A dovish central bank outlook, driven by the stagnant labor market, would generally be supportive of bond prices (lower yields) and potentially bearish for the US Dollar.
| Ticker | Direction | Speaker | Thesis | Time |
|---|---|---|---|---|
| LONG |
Bob Elliott
Substack author, Nonconsensus |
"Household income growth remains soft... savings rate declines require elevated wealth levels, which are likely to be supported by Easy Street policies ahead." Also, "Job growth is running just above zero and seems to be sticking there." A frozen labor market with soft income growth reduces inflationary pressure from wages, providing the central bank with more room to pursue accommodative "Easy Street policies." These policies (e.g., lower interest rates, liquidity) typically support higher valuations for growth-oriented companies, particularly in the tech sector, by lowering the discount rate on future earnings. Long growth stocks/tech sector on the expectation of continued accommodative monetary policy due to a stagnant labor market and soft income growth, which supports asset valuations. A sudden pickup in inflation (non-wage related), an unexpected hawkish pivot by the central bank despite labor market data, or a significant deterioration in corporate earnings. | — | |
| WATCH |
Bob Elliott
Substack author, Nonconsensus |
"Household income growth remains soft, savings rate declines are needed to maintain elevated spending, and savings rate declines require elevated wealth levels..." Consumer spending, particularly in discretionary areas, is currently sustained by dissaving and elevated wealth rather than robust income growth. This makes it potentially vulnerable if wealth levels decline or if the ability/willingness to dissave diminishes. While "Easy Street policies" are expected to support wealth, the underlying income weakness is a structural headwind. Watch Consumer Discretionary for signs of weakness, as current spending is not supported by strong organic income growth and relies on potentially unsustainable factors. A short position could be considered if wealth support falters. "Easy Street policies" continue to inflate asset prices, sustaining wealth levels and consumer confidence. A sudden pickup in hiring and income growth. | — | |
| SHORT |
Bob Elliott
Substack author, Nonconsensus |
"Household income growth remains soft... likely to be supported by Easy Street policies ahead." "Job growth is running just above zero and seems to be sticking there." A stagnant labor market with soft income growth reduces the likelihood of the Fed tightening monetary policy and increases the probability of "Easy Street policies" (i.e., lower rates or a more accommodative stance). This dovish tilt, especially if other major central banks are perceived as relatively more hawkish or maintaining tighter policy, could lead to a weaker US Dollar. Short the US Dollar on expectations of continued accommodative monetary policy from the Fed due to a frozen labor market and soft income growth, which could diminish the dollar's yield advantage. Other central banks become even more dovish, global risk-off events drive safe-haven demand for USD, or the US economy shows unexpected strength. | — |