IPO Activity as a Market Signal

Jeff Buchbinder:

Hello everyone and welcome to the latest LPL Market Signals podcast. Jeff Buchbinder here, your host for this week, with my friend and colleague, Dr. Quincy Krosby. How are you today, Quincy?

Quincy Krosby:

Fine. Thank you, thanks for inviting me, Jeff. I appreciate it.

Jeff Buchbinder:

Of course, of course. So I'm glad you're here because we've got a lot of economic topics to talk about, maybe a little global too. As we're recording this, it's actually April Fool's Day, April 1, 2024. So hopefully you believe what we say. We are going to tell you what we really believe, and we'll hold off on the April Fools jokes maybe until after we're done recording. So here is our agenda. Oh, actually also happy birthday to my mom. She's an April Fool's baby. So we've got market recap first. Hey, more new highs. I think that's 22 this year. Really remarkable. This market just keeps going higher. Next, we'll talk about the Friday data. So markets were closed for Good Friday, but we had the PCE inflation report come out anyway, so we'll recap that. Next Quincy, you did the Weekly Market Commentary this week about IPO activity, which is a really interesting topic for a few different reasons.

Jeff Buchbinder:

So, we'll, we'll walk through that. That's available on lpl.com. And then lastly of course, preview the week ahead as we do every week. So, so all-time highs. Boy, not only do we have 22 all-time highs this year, but we have a five month win streak now in the books. History tells us that after a five month win streak, you tend to go higher over the next year. History also tells us after a really strong Q1, you're very likely to be up in the subsequent nine months. So, you know, very likely to be up this year from where we are today. And the chart looks really good. You know, I think Quincy, one thing that's interesting to me about this chart, not just that it's going straight up, but that the, on the bottom panel, you see, there's not a lot of stocks overbought, right?

Jeff Buchbinder:

21% of the S&P 500 over its 70 RSI breakpoint or threshold that marks overbought. And we have pretty good breadth still. The I think the percentage of stocks in the S&P 500 over their 200-day moving average is now 85%. That'll come down a little bit on Monday. You know, as we're recording this the market is down just a little bit in the early afternoon hours. So you know, but nonetheless, pretty good breadth, which is a sign of a healthy market. So, Quincy, I'm kind of leading the witness here, but do you think this market can keep going higher? Are we due for a pullback? Maybe all of the above?

Quincy Krosby:

Well, all of the above. I mean, we're due for a pullback at some point. Markets tend to pull back after moves you know, overbought, overbought, overbought. But as you and I know, a market could keep going overbought for quite a time, just the way they can be oversold for quite some time. However, at some point something comes along to help the market pull back, to recharge, to recalibrate, getting it ready for the next level after a pullback. The question really is if it is a 5% pullback or 10% pullback. And then do we get the bears coming out? Trying to convince themselves and the market that this is now leading to a bear market. History, as you show, dictates that will be a pullback that will be normal, that will be healthy and reinvigorate the bull.

Quincy Krosby:

You know, the market is up, S&P 500 is up 75% of the time. So the question really for the market is how do we get there? What path are we going to take to get there? And that's what we have to consider is, you know, how do we see this pullback when it does arrive, and whether or not the pullback leads to breaking some of those really important levels in the S&P 500 that then shoots the market down more than that. That's going to be on the market's mind. And Jeff, as always, it will be when we have dip buyers coming in as they do, or even a small rally or, you know, I hate to call it a dead cat bounce, because that is so awful to say. But the question will be, what are they buying? Are they buying defensive names, defensive sectors, or will we see the continuation of optimism and have the semiconductors move higher, the consumer discretionary, technology move higher? That's what we have to be on watch for, is what leaves the market after a potential.

Jeff Buchbinder:

Market table here, because we saw a little bit of rotation last week, no doubt. I mean, the best performer last week was utilities up 3%. We haven't seen much of that lately. And you see the cyclical value sectors do well, right? Energy. Well, healthcare isn't really cyclical, but it's certainly value. Real estate, materials, right? These areas that have not done well up until recently led this week. And so the market is just looking for something besides tech to buy. And so we could have a scenario where the market, the, you know, the headline market doesn't move much, but under the surface you get you know, a lot of let's call it musical chairs. That you know, cyclical value or defensive value, or a little of both, strength last week actually led to value outperforming growth by quite a bit.

Jeff Buchbinder:

You know, you had the growth index here. We show the mega cap growth index down 0.6% and the value index up 1.2%. So pretty big dispersion there. I don't think there's anything really too exciting to highlight on the international side other than, you know, I guess you're finally starting to see Japan slow down a little bit after just such a strong year in yen. We're still up 21% year to date. I guess the, you know, the economic data, Quincy, in Europe's been getting a little bit better. And the performance is pretty good. It's just hasn't been able to keep up with the you know, with the S&P 500. Any thoughts on the international markets here? Anything catch your eye?

Quincy Krosby:

I do because we're seeing reports and it's data driven, that hedge funds are placing more in Europe than they have in obviously a very long time. And it's predicated on a belief, on a narrative, that the European Central Bank could actually cut rates before the Fed does, especially if overall the inflationary pressures ease at a faster clip than say, in the U.S. And also, the weakness, for example, in the engine of growth in Europe is Germany. You saw some of the surveys coming out of Germany, sentiment surveys also climbing higher. Normally that happens, we've seen it over the last number of months, when the market believes that we may see a rate cut coming. One other part of this narrative, Jeff, is some of the outspoken officials, not necessarily on the doveish side, of the ECB, suggesting that by keeping rates higher for longer may do more damage to the economy than cutting rates a bit sooner. So I think this has probably gotten the hedge fund's attention. Remember their hedge funds, they hedge it with something else. We always have to remember that. And they may not be in there very long if it doesn't happen. And also, if it happens, it may just be a very attractive trade for them. We have to remember that. But we are seeing hedge funds allocating more towards EAFE and Europe in particular.

Jeff Buchbinder:

Yeah, that'll be interesting to watch. I mean, we, you know, the good news, I guess is for folks who are globally diversified, you're doing just fine in Europe. But we really focus on the relative. And if you know, if Europe can't outpace the U.S., then, you know, we don't find that particularly exciting. Still, something to watch. And that's some interesting insights there you shared. How about China, Quincy? You know, I mean, the market continues to struggle, but we actually got some pretty encouraging manufacturing data out of China over the weekend.

Quincy Krosby:

Yeah, we wrote about that this morning in the Daily Market Update. And that is the Caixin, which by the way is quote unquote private. They do surveys. That their survey indicates that manufacturing has finally moved into expansion territory just slightly. And also, that consumer spending also moved into a positive territory, again, slightly, with 50 being the line in the sand. If under 50 it is contraction, above its expansion, they cite that the companies that they monitor, and this is the Caixin and they survey, I think about 630, 640 companies. They typically focus on companies that manufacture, but they are also exporters, whereas the government goes and just goes to all of the manufacturing companies in the country. And that's thousands of companies, small, medium, and large. But in any event, the Caixin found that it has been climbing higher, and it matches the other numbers indicating that exports have been climbing higher.

Quincy Krosby:

Now, one thing we have to remember, and that is that the government, Beijing, has made it very clear to virtually every company, every bank in the country, do not divulge information, particularly if it is negative. So even though we have this positive number, and it is good, as long as it is underpinned by actual data, data that we don't have to question. That's why the, you know, many investors pay more attention to the Caixin believing they have extremely good contacts and contacts who will speak the truth about the underpinning numbers.

Jeff Buchbinder:

Very interesting. Yes. Yeah. So sure, the tone is maybe getting a touch better, but again, we'll watch the markets and see if you know, China can get any traction. But we continue to be underweight emerging markets, overweight the U.S. Let's turn to bonds and commodities. I mean, one way that the better growth in China, potentially, shows up as with higher commodity prices. So we had, you know, rising commodity index broadly. We had rising energy prices last week. We had a strong week for precious metals, gold is setting more all-time highs, just like the S&P 500 and the Nasdaq. So, you know, we'll continue to watch that. But that might be a, you know, it's inflationary obviously, but it might be a positive growth signal as well. That maybe you know, some of these economies outside the U.S. can start to help global growth a little bit more. And the bond market, you know, was real strong last week. It's weak today. But you know, the good news last week, I mean, certainly first of all, the inflation data was in line. But secondly, you had the market digest all of these Treasury auctions. Mm-Hmm,

Quincy Krosby:

<Affirmative>,

Jeff Buchbinder:

Right? That was a risk if the market can't take down those auctions successfully, you can see rates higher. They are higher today, but they behaved pretty well last week, which is a positive sign. Thoughts on the bond market here, Quincy?

Quincy Krosby:

Well, yes, absolutely. The seven-year auction actually was bid by the foreigners, which we watched because foreign is sporadic. Foreign take down is sporadic. It was strong. And what happened was the market climbed higher as the 10-year yield after the seven-year auction closed. The 10-year yield came down and came down forcefully. It really helped ignite the market, and the market just climbed, by the way, Jeff, this was before we heard from Christopher Waller with his commentary about rate cuts, thank goodness, because the market really did surge.

Jeff Buchbinder:

Yep. Chris Waller Fed governor. And then Powell spoke on Friday, and that pretty much, I guess was kind of repeating the same messages. Right. We'll show you the two-year yield here in a minute and you'll Mm-Hmm. Yeah, can judge for yourself, <laugh>. But generally speaking, I think what we got was as expected. So you know, the sharp sell off on the bond market today on Monday, is a little bit surprising. But so this is from you know, our Chief Economist, Jeffrey Roach, and he makes this inflation heat map, which I think is really helpful. The line I want to point your attention to is the last line. It's PCE Deflator, core services, ex housing. This is the problem, right? This is the number that's been sticky, that's been stubborn, right? And it's starting to come down. I mean, there are other, I mean, rents, you look a couple of lines above that, and you see rents still five eight, that's certainly sticky too. But outside of rents, which will come down, we see it in the real-time data. Outside of that, you know, the inflation picture is getting better. What were your thoughts on Friday's data, Quincy?

Quincy Krosby:

Well, I think as you said, it was within consensus. What we saw was a little bit tad cooler month over month, and a little bit hotter year over year, which was by the way, within consensus. So whenever something comes in within consensus, the market takes a deep sigh of relief. Except had it been cooler a year over year, or even colder within month over month, the market today would've been rejoicing, rejoicing the fact, but still we're seeing over 50%, and now it's about 64, 65% probability for a rate cut in June. But that has come down dramatically from where it was some months ago. And so this week, we have a very important data coming out, especially with the payroll report, but Fed speak, oh my goodness, this is like the, if you enjoy Fed speak, you'll be delighted this week, every minute of the day.

Jeff Buchbinder:

Who doesn't?

Quincy Krosby:

And who doesn't, right? I mean, I can't believe no one wants to hear that. But I'm paying very close attention to Loretta Mester because she is another pragmatic hawk, just as Chris Christopher Waller. They are pragmatic hawks, and the market tends to listen to what they have to say. But on the other side of the ledger, other side of the monetary aisle, Rafael Bostic, who is known as being very dovish, he is the head of the Atlanta Fed, who really initially thought we needed to have more rate cuts, is now talking about, well, maybe one rate cut, and then we pause for a while. When you have a dove suggesting that you have to pay very close attention. And the question, as we've talked about internally, Jeff, and we shared this with our audience, it's an election is coming up. You could argue all you want, that it has nothing to do with the election. It doesn't help, it doesn't hurt. But we all know we don't want to see a tug of war over this, which suggests that the Fed, if they are going to cut, perhaps it has to be June or July, and then wait.

Jeff Buchbinder:

Yeah, the odds of a June cut are 60% in fed funds futures markets right now, although that yes, this morning, maybe it's come down a little bit since then. I mean, it looks like, I mean, even though we've heard this story from Powell before, and the data from Friday was in line, the bond market is reacting negatively to that. We're actually up about 13 basis points now on the day on the 10-year.

Quincy Krosby:

Look at manufacturing, the ISM manufacturing survey actually now moved into positive territory. It has been under tremendous pressure, tremendous pressure on the regionals, have been under terrible pressure. And yet that ISM manufacturing came in just above 50, which is good news, but is it good news if you want a rate cut?

Jeff Buchbinder:

Sure. And so stocks are probably reacting to that change in yields today more than anything else. But, you know, we've come a long way too in a short period of time, as we all know. So there's probably just a little bit of profit taking by some as well. So you know, here's kind of a proxy for what the Fed rate cutting cycle is going to look like over the next two years, right? This is the two-year treasury yield, you know, 4.70 when I ran this. That's kind of the recent high right in this little range. So hopefully that continues to hold. I guess 4.75 is the roughly four month high? So what does this tell you, Quincy? Is this consistent, you think with you know, let's call it maybe three cuts this year and a few more next year? Or do you think this might be mispricing the potential you know, rate cuts we have ahead.

Quincy Krosby:

Perhaps mispricing it. Because one thing the market does not want, Jeff, and we've talked about this so often, they don't want the Fed cutting rates because the economy is deteriorating. That's not the scenario they want. They want a soft landing, which includes rate cuts. And perhaps even if we got one or two, the market can absorb that. But three may a little bit more difficult at this point, given that we've just seen an uptick in expectations for first quarter GDP. Now, again, this is, we're going to see a lot more data coming in, but for the first quarter, 2.3% GDP, which is not stellar, but it's certainly is solid. Now, again, there'll be still data coming in that's from the first quarter, and that will be absorbed. But the fact remains that the economy, and again, thinking about the payroll report, the expectations are that the unemployment rate could come back down to 3.8%, that average hourly earnings come down just a bit.

Quincy Krosby:

But will it be enough? Will it be enough to slow down consumer spending? One last thing on this, Jeff, is that we always talk about gross domestic product, but also the GDI, gross domestic income, they're starting to meld, just starting to come in. And the last figure we had showed that we're seeing a balance in that, in those two numbers. It's something that the market has been paying very close attention to. So this economy is resilient, this economy doesn't disappoint. And the fact of the matter is, the question is what does the Fed do in light of this? And we're going to hear this week, I think, from what the doves have to say and what the hawks have to say. And I think at the end of this week, this picture may just change and change markedly depending on what they have to say.

Jeff Buchbinder:

Yeah, no doubt. I mean, we'll get to the jobs report later, but certainly, you know, that has the potential to you know, push yields a little bit higher. We'll see, could change Fed rate hike, a rate cut expectations. I saw a report from a pretty prominent economist suggesting that weather and seasonal adjustments could lift that job number above expectations. So we'll have to see.

Quincy Krosby:

Oh, no, woo.

Jeff Buchbinder:

We'll have to see. Well, if the market knows that that's why, then it won't maybe care.

Quincy Krosby:

It won't matter as much. Yeah.

Jeff Buchbinder:

But we'll see that, that is, you know, now that we've got the strong manufacturing numbers from this morning in the books, the market's reacted to that. The next key data point is certainly that jobs report on Friday. So let's turn to your weekly commentary for this, this week, Quincy, it's nice when it lines up where I have you as a guest and you wrote the commentary. So the topic is IPOs, you know, which I think are interesting as a risk barometer. So I guess, you know, the question is why should we, why should we care? What, how do you interpret the, you know, the recent uptick in IPO activity?

Quincy Krosby:

Well, I mean, it's healthy because when you, there's the pipeline, right? The pipeline actually is filled. The question is whether or not they take these companies to market. And when they do, they have to factor in so many aspects and components of the market and the economy and risk. And therefore, the more companies that come to market and do well, the more it helps propel other companies to come to market and go public. What, what one of the issues for this market happens to be, whether or not the venture capital firms and private equity firms that got involved with all of these companies, you know, during the period of rates next to nothing, in fact, many periods negative when you factored in inflation, whether or not they're prepared to take a haircut, that just means that they don't make as much money as they wanted to make.

Quincy Krosby:

And then you know that this is to pay back their shareholders. So the question is, or their investors, I should really say. So that is important. So what happens is, in a market such as we've had that has moved up so dramatically, you would think that the IPO market would be sensational. You would think that it would be gangbusters. However, hovering over the market is the money that was lost when the SPAC companies came into the public market and lots of money was lost, and it hasn't been forgotten. So this market is being very careful. Now, I would say that when we look at it, anything associated with AI is doing well. The market is also focused on Reddit. Reddit, a social media, almost a pure social media company, that is helped by their revenue from advertising. But they have hooked up with Google, with Google coming in and looking at the data and perfecting their own models, a little bit of an AI tilt to it.

Quincy Krosby:

What's happening is Reddit has been seen as the bellwether to whether or not they can do well and can they bring in other sectors? Because again, if it's a tech name and it's doing well, okay, we understand that. If it is a pure AI play, which we have in this latest round, yes, that will do well as investors gobble up those names. But Reddit is something different than that. And what we're seeing this week and the very end of last week is a pressure on that initial share price. The initial share price was in the thirties. So it was the pop that happened right afterwards where it moved up into the high forties. But it is hovering there. We need to watch to make sure that it holds there and then actually sees more investors coming in.

Quincy Krosby:

Many of the analysts have come forward and put a hold on Reddit, and that may be affecting it. Some folks are calling it a meme stock. Oh my goodness. You say meme and people get really nervous. But if Reddit can make it and maintain the higher end of what, of the initial launch and even go back up into the fifties, it would be very helpful for the overall market. So again, what the IPO market absorbs and what it suggests is actually whether or not you have a strong climate for companies to come to market, whether or not the geopolitical environment hurts the climate, obviously for obvious reasons, and whether or not the entire focus on lower interest rates whether or not that comes to the market and helps those companies because many of these companies need to have a lower rate to service their debt.

Quincy Krosby:

Many of them have debt. And when you go on your roadshow with the institutional investors, you want to show and give concrete examples that the lower interest rate is helping service whatever debt they have. If you can't do that, the question then becomes do you really want to go and launch in what is now a high interest rate environment within our period? Like a lot of folks say to me, Jeff, oh, come on Quincy, 5%, 7%, we've been there, 8%. Yes, we have been there, but not when you started this period of negative interest rates. Right? And that skews everything. So this is why it's extremely important. Our market that has done so well should also have seen a strong pipeline, a calendar for companies coming to market going gangbusters. That has not been the case.

Jeff Buchbinder:

Let's go to this next slide and that kind of I guess supports your point. Things have picked up a little bit with Reddit with some other you know, IPOs this year. This is a chart showing, you know, the last chart just ended at 2023, showed you IPOs by year. You saw that big spike in 2021. A lot of that, as you mentioned, was the SPACs, Quincy, the special purpose acquisition companies, I believe is what that stands for. It's like a different way of doing an IPO where you create a shell company and then a private company is absorbed into the public shell, backdoor way of doing an IPO. Anyway, you know, we didn't see many IPOs 2022, most of 2023, then late last year, and now early this year they've started to pick up. So, you know, this is this will be interesting to watch as you suggest Quincy, if we get continued supportive environment for risk taking, right?

Jeff Buchbinder:

Supportive capital markets. We've certainly got a good stock market, high level. But we need a little bit more than that. We should see more companies come to market. And this, you know, it's all about performance, Quincy. So this chart just shows you the Renaissance IPO Index. You know, the newly public companies go into this index and you can see how they're trading. I think they come out of the index after two years. So not only do you have, you know, the recent IPOs, the Reddit's and the ARM Holdings and things like that coming in here but you have some IPOs that maybe people have forgotten about from a couple years back as well. And what you see here that's interesting, Quincy, is you had this huge spike in performance was tremendous you know, in 2021 and into early 2022, and then it just collapsed.

Quincy Krosby:

Yes.

Jeff Buchbinder:

But it's gotten a little bit better recently. So, you know, what do you attribute that to? What does this mean?

Quincy Krosby:

I attribute it to the strength in the economy that it's solid, not stellar. So stellar that it keeps the Fed from cutting rates. And that you know, if folks are interested in other sectors, remember, you know, AI could probably do exactly what they've done in the market, become a real tight market. But what you want to see is a broadening in the market. And at least we're seeing that Jeff, in the small and mid-cap space. When you look at what's doing well and where the allocations are going, it's going to industrials, it's going to technology, it is going to healthcare, that includes pharma and includes biotech. It's going across the board, which is healthy. And it shows that there's a broadening in the market. And that's exactly what the IPO market needs. It needs a broadening.

Quincy Krosby:

So it's not just based on having, you know, AI-related names. You know what's also interesting is when we go back and look at the market, you remember CAVA, you ever see the CAVA, yeah. That had a really good launch, that was a couple of years ago now, and it was food based and people are like, oh my gosh, that yeah. How could we have that? It's almost as if you were so attuned to technology that you can't believe anything else can go public.

Jeff Buchbinder:

Yeah. They're trying to be the next Chipotle in a different category.

Quincy Krosby:

Yes, exactly. Middle Eastern food. Yeah.

Jeff Buchbinder:

CAVA’s had quite a run. So yeah. That's a great point about seeing different kinds of stocks go public successfully, because that's what we're watching for in the S&P 500 or broader, the Russell 3000. We want more than just tech. Yes. Pushing us higher. We're starting to see that, right? As we talked about earlier, now we could see it in the IPO market maybe. And that'll be confirmation that that broadening out that so many people have been looking for is actually happening. And so you could end up with, you know, the highflyers may be correcting a little bit, but the broad indexes may be not correcting as much. Exactly. Because some stuff works as other stuff doesn't. So, that's a really important point that we'll continue to watch, certainly. So thanks for that Quincy. Again, lpl.com on the Research tab, we got our Weekly Market Commentary that Quincy put together. Really good. It was a little bit of a team effort, but Quincy you did it.

Quincy Krosby:

Thank you, Jeff. By the way, folks, Jeff was my proofreader and editor. He's the best.

Jeff Buchbinder:

I appreciate that. Yeah, I got a lot of experience. I think I started working on the Weekly Market Commentary 10 years ago. So hope you enjoy that one. Let's go to the week ahead, Quincy. We already teased this a little bit. The jobs report is Friday. That's going to be the big number of the week. 200,000 is consensus. You know, who knows if seasonals and weather lift us above that, but there's just no doubt that the labor market has slowed a bit, and the economy is slowing. Not a lot <laugh>, but is slowing. And so, you know, whether this March number is good or bad, it's just what's important I think is the trend, right? This, this trend of slowing, this trend of cooling. And that's why you continue to hear the, you know, the Fed talk about getting close to a cut. So anything else on the jobs report or any other data that you think is worth noting here?

Quincy Krosby:

Well, yeah, I mean, when we look under the hood on Friday, you'll see a lot of commentary regarding wages. Remember, the Fed does not want to see wage growth climbing too much because then companies say, well, we need to get paid for this. We may raise our prices. You don't want to see that. Also with higher wages, that usually leads to more consumer spending, right? And that could ignite inflation. So the Fed wants it not bad, not great, but just, right. And they may get that because the expectations are that hourly earnings have come down just a tad, but enough to placate worries that the wages are just skyrocketing. So that's one thing we're going to look for. We're going to look for also hours worked. This is one that I think is very important because it indicates the health of the economy. Do I need my workers there for a full week of hourly wages or is it slowing down?

Quincy Krosby:

So we'll watch that. And of course, Jeff, as we always watch, how many jobs were created in the private sector and how many from government. I love that a lot of people say, well, government doesn't count. Well, you know what it does because people get paid and then they go and they spend their money. But overall, we want to get a sense of the economy. One last thing is that the initial unemployment claims, which is widely followed by economists, are healthy. Yet, where seeing a little bit of issue, just a tad, we're keeping our eye on it, are continuing claims that is actually inching higher, not surging higher, inching slowly higher, which indicates that folks may be having trouble getting another job right away. So we'll keep our eye on that because that would then suggest a little bit more pressure within the infrastructure, if you will, of the labor market.

Jeff Buchbinder:

Yeah, it's a good point. I mean, I'm not sure, I think they call it the Sahm rule after the economist.

Quincy Krosby:

Yeah, Claudia Sahm.

Jeff Buchbinder:

Claudia Sahm, right. I'm not sure that that's going to work again here. Maybe we've already shown that it's not going to work.

Quincy Krosby:

She says it may not work.

Jeff Buchbinder:

She even said that. So there you go. So that just means that if you get a certain increase in unemployment over a certain period of time that that signals recession, it had worked. I mean, frankly, leading indicators used to work well, now they don't. Yield curve seemingly isn't working this time as a recession predictor. So, you know, important to watch jobless claims, and it will eventually precede, you know, it will signal a recession at some point <laugh>, because you're not going to have a, you know, a tight job market and then go into recession. It's just not in the cards. So that signal will work at some point. It's just, you know, likely to be a lag and, you know, it's hard to call a recession in 2024 at this point. You know, maybe we start to see some deterioration late this year to the point where you could end up getting kind of a stalled economy.

Jeff Buchbinder:

But you know, I mean, you see it in the Atlanta Fed GDP Now that we're looking at maybe two and a half percent GDP growth in the first quarter. Companies are certainly not going to stop spending right now. There's really no reason to stop spending. And you just talked about Quincy, consumers are going to, you know, continue to get paid. You know, two sort of underemphasized elements to this economic expansion, I think are the wealth effect, right? Look how much wealth's been created in housing and stock prices that's supporting consumer spending. And there's this stealth government spending coming through that people aren't talking a lot about, I don't think. The you know, the stimulus plans, right? The Inflation Reduction Act, the government spending from that and the other stimulus programs from the Biden administration. That spending is still coming through. In fact, I think this year might be the peak year for the Inflation Reduction Act spending. So you, and this is why we're getting government jobs, right? Maybe people don't value them as much, but those are coming through, and they are supporting the economy. So, you know, I'm no economist, but I think Jeff Roach would agree with me on this, that this economy at least in the very short term, might continue to surprise the bears and remain resilient.

Quincy Krosby:

Well, I think absolutely. I mean, I'm no economist either, but I really am. But I'm just a consumer and I look around and I see, and I, but we have to appreciate though that the lower wage earners are having a difficult time. There's no, this is concrete and they are having trouble, the interest rates are higher, they're using their cards, delinquencies are picking up, and we're also seeing more cars being taken away because folks can't keep up with the payments. So you have that, but on top of that though, you have a healthier environment. And the question is, what does the Fed pay attention to? And they by necessity, they have to pay attention to the entire picture, not just the lower level. One last thing I want to mention here, if I may, Jeff, is that I have noticed that Chairman Powell has been invoking the labor mandate more and more as a reason to perhaps have to cut rates.

Quincy Krosby:

We've been so used to his talking about the price stability, getting to that 2% level. That's been the narrative for, it seems like years actually. But over the last number of speeches that he has given, including at the press conference from the Fed meeting, he has mentioned the labor market more and more. And that is the Fed's other mandate, to create an environment of sustainable economic growth, which is the labor market. And he has come actually out very clearly and said that could be another reason that we cut rates. So the market has been shifting a little bit in terms of his thinking, but certainly he sees the data and sees that the economy remains solid. It doesn't, it's not stellar anymore. It's just solid. And you know what? Solid is good. It's good for the stock market, and it's good for most of the country.

Jeff Buchbinder:

Yep, absolutely. That's a great note to end on. So thanks so much for that, Quincy.

Quincy Krosby:

Thank you.

Jeff Buchbinder:

Appreciate your insights. Thanks everybody for listening to another LPO Market Signals. We'll certainly continue to follow all of that here for you from week to week. So we'll be back with you next week. Have a wonderful week everybody. Hope you all had a nice holiday weekend. And we'll be back with you next time. See you then. Take care everybody.

Quincy Krosby:

Thank you, Jeff. Thank you.