Thoughts From The Divide: Les Bons Temps

It may be only January, but this week, both markets and data appear to be running with the Mardi Gras slogan, “laissez les bons temps rouler!”. While they haven’t broken out the beads and the hurricanes/Sazeracs just yet, everything is coming up roses.
BY JON WEBB

Thoughts From The Divide: Les Bons Temps

MI2 Partners
Jan 17

 

“Results… are not guaranteed by solid optimism”

It may be only January, but this week, both markets and data appear to be running with the Mardi Gras slogan, “laissez les bons temps rouler!”. While they haven’t broken out the beads and the hurricanes/Sazeracs just yet, everything is coming up roses.

Inflation? Why worry! The latest numbers from December saw core CPI drop to 3.2% YoY, “the first time since July that year-over-year core CPI saw a deceleration in price growth”. Hurray! The cynics out there may join Jim Bianco in noting that it was a matter of just 0.002% between the 3.2% print and rounding to 3.3%, but why let the math get in the way of a good time? “Wall Street breathed a sigh of relief after a surprise slowdown in inflation spurred a stock rally and a plunge in bond yields”. But while “equities erased their losses for 2025”, shouldn’t bonds have been an even greater participant in an ‘inflation fears are overblown’ rally? Perhaps the equity move was more about flows and the infamous money on the sidelines?

Or it could be partly a function of the other half of the revelry, recent economic data. The NFIB’s optimism index hit its “highest reading since October 2018”! The Philly Fed’s “indicators for general activity, new orders, and shipments rose sharply and reached multiyear highs” just as “the survey’s broad indicators for future activity rose, suggesting more widespread expectations for overall growth over the next six months”. These positive outlooks do of course come with the caveat that they could cause a hangover for the bond market. The NFIB noted that “inflation remains the top business problem” and the Philly Fed’s price indexes both rose “to recent highs”. And yet there was optimism that inflation is contained. “The average percent change in costs expected for 2025 was smaller than the average percent change in costs reported for 2024”. Glass half full? (As an aside, consumer expectations over the short and medium term converged to 3% in the New York Fed’s latest Survey of Consumer Expectations).

While we wouldn’t want to call into question the eternal wisdom that while the music is playing, it’s best to keep dancing, but with a new DJ set to take the stage next week, it’s perhaps worth remembering Mr. Twain’s aphorism about what we know for sure as everyone heads to the bar for another round.

https://www.gocomics.com/calvinandhobbes/1991/01/23

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