Leading macroeconomic data has displayed significant weakness since breaking down in 2022, yet investors have become increasingly hopeful for an economic soft landing as some of the data showed modest improvements in the first half of the year.
However, over the past few months, most of the positive inflections in the macroeconomic data have begun to reverse course. For example, Consumer Sentiment trended higher after reaching an all-time low in 2022, but it has now declined for three consecutive months. Likewise, NAHB Builder Confidence had a strong start to 2023, yet it has also now dropped for the third consecutive month and is at a historically low level. Finally, the ISM Manufacturing Index inched close to expansion territory before dropping to a three-month low in its latest report.
These macroeconomic developments reinforce our current defensive positioning and reiterate that an economic hard landing is still a likely outcome heading into 2024 – despite this year’s exuberance in a narrow group of mega-cap growth stocks (see our Gorilla Index). We are now watching for the final macroeconomic shoe to drop –a definitive worsening of the employment data– to confirm that recession is at hand.