Markets aren't nervous enough as a key recession indicator just flashed — but JPMorgan says that doesn't mean it's time to sell stocks.
Stocks could still climb even as a key recession indicator just flashed, according to JPMorgan. Meanwhile, DataTrek said markets aren't nervous enough
Before we get to that, I sat down with a portfolio manager this week and he shared five book recommendations to better understand Europe's ongoing energy crisis, including one that makes the case for fossil fuels. See his picks here.
Okay, now that we've got some new summer reading — shall we?
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1. A key recession indicator just flashed. Every single time jobless claims have jumped 10% or more above their prevailing three-month average, the economy ended up tipping into a recession — and JPMorgan said that's exactly what just happened.
"There have been no false signals with this indicator," analysts said Tuesday. "Unlike the shape of the yield curve, or the money supply, which are leading indicators, this one is more coincident."
Counterintuitively, DataTrek highlighted that Wall Street's fear gauge isn't as high as it should be, which suggests markets are getting complacent.
Right now, VIX indexes for the S&P 500, Nasdaq, and Russell 2000 are all trading slightly above their long-term averages, and well below a 1-standard deviation reading, DataTrek strategists said.
The rampant uncertainty with markets, the Fed, and the economy should mean the fear gauge is higher, they added, but that isn't the case.
"In our view, US equities do not reflect sufficient 'fear' given currency macro and micro uncertainties," DataTrek said.
And yet, JPMorgan said investors shouldn't rush to sell their stocks because the same jobless indicator has also historically pointed to more upside in the market.
When it hit that 10% mark, analysts said, the S&P 500 went on to return an average of 11% over the next 12 months, according to the bank.
What's more, resilient corporate earnings have helped buoy the market even as inflation and recession concerns weigh on investors.
In effect, Wall Street's top brass seems to be suggesting that a recession could be imminent — but that doesn't mean stocks can't climb higher.
Stocks and the economy don't always align — how do you think markets will move ahead of the central bank's September rate hike? Email prosen@insider.com or tweet @philrosenn.
In other news:
2. US stock futures edge lower early Wednesday, following Tuesday's fresh labor market data. Meanwhile, bitcoin was trading around the $20,000 level. Here are the latest market moves.
3. On the docket: Okta Inc, Barnes & Noble Education Inc, and more, all reporting.
4. Goldman Sachs recommended these beaten-down stocks that growth mutual funds love even during the sharp market selloff. Top funds are scooping up shares of this batch of names — see the list of 15 that analysts are recommending right now.
5. Nord Stream 1 will shut for maintenance today, though Kremlin officials say Western sanctions are the only thing stopping gas flows through the key pipeline. Russia's Gazprom begins its three-day shutdown period for the key pipeline, even after it had already cut flows to 20% of its capacity. A Kremlin spokesperson said sanctions are what have prevented normal repairs.
6. Russian oil exports to Asia have fallen by more than 500,000 barrels a day to a five-month low. Crude shipments continue to slide, Bloomberg data shows, with seaborne exports hitting their lowest level since March last week. Get the full details here.
7. Lumber prices just hit a new 2022 low. Goldman Sachs expects housing to slow down, but that doesn't mean a deep recession will follow like one did during the last housing bust in 2007. Still, the bank warned that the housing market still has room to fall.
8. Mihailo Bjelic cofounded Polygon, the massive blockchain development platform that landed partnerships with Meta, Stripe, and the NFL. He explained how he got into cryptocurrency — and what it's like leading a 450-person company by the age of 36.
9. Smart-money hedge funds have turned bullish on certain tech stocks after they had previously backed off. Jefferies laid out which two mega-cap tech companies that certain firms are targeting in the current market. Strategists also broke down which three names they are shorting.
10. The US still has a ton of available jobs. Job openings unexpectedly rose to 11.2 million in July, new government data showed Tuesday. The print snapped a three-month streak of declines, and landed above the 10.5 million estimate.
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Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.