By Michael Wilson, chief US equity strategist at Morgan Stanley
Happy "Labor" Day
The sharp correction in stocks in July/early August was due to several factors, with the most important one being softer-than-expected economic growth data that culminated in a weak employment report on August 2. In particular, the 0.2pp increase in the unemployment rate is what triggered the Sahm Rule and caused markets to worry again about a hard landing. Since then, we have received some better economic data led by jobless claims, retail sales and the ISM non-manufacturing survey (though some data have been softer, too). As a result, many equity market indices have rallied back to near all-time highs, while the bond market, yen and commodities reflect lingering suspicions that the coast might not be clear (spot the odd one out). Even equity market “internals” like cyclical versus defensive stocks have failed to rebound much at all, while lower-beta stocks continue to show very resilient performance amid the mixed data on both the macro and micro fronts.
