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ISM prices decline points to future steep fall in PPI (like a rock). Remote-work creating same job posting in multiple cities (overstating tightness?) 2H rally thesis strained but still intact

There is a lot of trepidation about markets in September. The seasonals worry investors (one of the toughest months), coupled with midterm election uncertainties (not resolved until November) and the painful three-week downtrend in stocks adding to the misery.

Stocks are approaching the “no bid” situation seen in June 2022. In investor conversation after conversation, many tell us they see little upside in stocks because:

  • Fed just told us the bar is pretty high before they consider a pivot
  • Inflation needs to make considerable progress towards “2%” range
  • Labor markets are still tight, so further economic slowing needed
  • Europe is about to enter a recession
  • China zero-COVID wreaking havoc
  • Russia still toying with global energy supplies
  • Above all, earnings are set to fall (by unknown magnitude)

This is a considerable list of concerns. And we are not blind to these issues. But the first 3 really matter most to US equities. Europe’s economic trajectory is uncertain, but economic weakness there primarily transmits to the US as lower inflation. Similarly, China’s situation has mixed impact by impacting the supply chain, but the suppression of demand is also disinflationary.

The BLS will release August payrolls on Friday. And given the above list of concerns, investors ...

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