Bond Market Perspective on the Selloff

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 Lawrence Gillum, on a tough day to talk about markets here, August 5, 2024. We're down about 3% as we're recording this early Monday afternoon. Market action aside, Lawrence, how are you?

Lawrence Gillum:

I'm, I'm doing okay. It has been a pretty exciting day today. I was expecting today to be a quiet one after a busy and fun-filled Olympic weekend. But alas, we didn't get the quiet that I was hoping for, but good to be here.

Jeff Buchbinder:

Yeah, I guess when I use the word exciting, it's normally in a positive context. This certainly the Olympics are exciting. Yes positive, exciting. Maybe the election is a little bit more negative, exciting, but certainly this market is convincingly negatively exciting because we're down pretty sharply, although off the lows of the day. So we're going to spend most of the podcast talking about that. Obviously, that's what people are most interested in. And then of course, Lawrence, given your role, we want to hear what the bond market is saying. You know, I'll even admit it as an equity strategist, bond market tends to be a little smarter than the equity market. Might say that this is proof of that, yet again, based on what we're seeing here you know, over the last several days.

Jeff Buchbinder:

So interested in what you're seeing in the bond market. And then lastly preview the week ahead, as we always do. So, we're going to kind of skip last week's market recap and just go right to the sell off. So, I made this bullet point list of, you know, what is it seven things that we're watching. So I'll just run through them. You know, first we want to see evidence that the economy's not falling off a cliff. Second, now, these are potential catalysts, right? I mean, all of these things, frankly, if they play out or once they play out, you would expect stocks to complete their bottoming process in concert. So you know, next is potential Federal Reserve capitulation. Third, a successful technical test of the 200-day moving average. Fourth, we're watching trading desks.

Jeff Buchbinder:

I'll explain that in a minute. Fifth, currency markets. Sixth, the VIX and seventh share buybacks. Actually share buybacks aren't necessarily an event of one day, but it's certainly something that can help us stabilize. So let's just go through these Lawrence one by one. First economic data, right? So, you know, one of the reasons that we're in this mess today is because the data was really weak over the last several days, and that caused markets to fear that the Fed is behind the curve yet again. So, you know, I guess it started last week with the ISM manufacturing index being very weak. Then that continued, that narrative gathered speed once we got the payrolls data. So you know, our interpretation, Jeff Roach, our economists, his interpretation is this economy is not falling off a cliff. It is slowing. We've been talking about a slowdown for quite a while. Your thoughts, Lawrence?

Lawrence Gillum:

Yeah, no, I certainly agree with Jeff in this in this case, it is slowing. We've seen some evidence of that, particularly the labor market weakness. Last week, as mentioned, we did get some economic data today suggesting that the service part of the economy, which is the larger part of our economy, continues to perform well. And we actually saw those economic or that economic data come in above expectations. So, it's not as potentially dire, perhaps as markets are pricing. We're going to get into perhaps reasons why we're seeing this sell off, but I would argue it isn't all economic related because we have seen a slowdown, but not to your point we haven't seen the economy falling off a cliff. Nor do we think we will see the economy falling off a cliff. So I think if you, if you use these analogies about butter, you know, butterflies flapping its wings and causing other things happening, maybe the weak economic data over the past week was just the butterfly flapping its wings which caused other things to you know, push markets lower.

Jeff Buchbinder:

Yeah, that's well said. It usually takes a little bit of time for these things, excuse me, for these things to play out. Losing my voice here, have been talking a lot today. So you know, that ties into the Fed, right? I mean, if the economy's not falling off a cliff, which we don't think it is, then maybe the Fed can be patient and follow the data and just cut 25 basis points in September. What do you think, Lawrence? Market is pricing in 50.

Lawrence Gillum:

Yeah, we're going to get into a slide in just a second about what the bond market is pricing in. But you know, there's this argument that the Fed is late there's a policy error, and the Fed needs to cut rates intra meeting, which I think would be outright negative signal to markets suggesting that the, you know, the economic data, as we just talked about is weakening. I think if the Fed moves ahead with this intra-market cut, as some people are calling, I think that that would scare markets more than actually help markets. Which I think the markets would think that the Fed is starting to panic here when we don't think that the Fed needs to panic currently. So, I'm of the view that the Fed is not creating a policy error right now.

Lawrence Gillum:

I think the Fed can actually wait until the next meeting to cut rates. And I still think 25 basis points is fine, because I think if you think about it, the Fed funds market is the market that is the Federal Reserve essentially controls, no one borrows in that market. The 10-year treasury yield has fallen a lot over the last couple trading sessions over the last couple weeks. Other treasury yields are lower as well. So that's actually helped borrowing costs for a lot of consumers. So I think a Fed rate cut would be a signal, whereas the markets have actually done a lot of the heavy lifting for the Fed already and made the cost to borrow cheaper. So that should be you know, stimulative if there is any sort of concerns about a slowing economy.

Jeff Buchbinder:

Yeah, that's an excellent point. You know, we get into the whole, what does the Fed know that we don't, right? And they just don't want to play that game. So, I agree. I don't think we're going to get an emergency cut, although we could get 50 basis points by the time we get to September. There's still some data to come between now and then. Next bullet point four, this is trading desk. You know, we got to monitor the yen carry trade, right? So what is that? Well, you borrow the yen because it's cheap, it doesn't yield anything or hasn't yielded much. And then you know, deploy those proceeds into higher yielding currencies. So clearly, I mean, the yen has surged. Clearly some of these carry trades. This is just leverage. It's like a margin call, right? And so clearly some big players are getting margin calls and they're having to, you know, sell positions to cover those trades, right?

Jeff Buchbinder:

The value of the collateral is falling. That's the, you know, the position size, right? So, you know, I don't want to get too wonky here, but when you, when you borrow into a down market and you get a margin call, that selling pressure can feed on itself and so that's why, or one of the big reasons why we're down, maybe more than I would've thought and why the VIX, which we'll get to in a second, has spiked so much. So that's one piece, you know, which clearly, you know, trading desks related to currency markets. The other reason we want to watch trading desks is because the sort of systematic or quantitative traders, big institutions, seemingly got caught with too much bullishness, right? Again, leverage and positions that were just overly stretched on the long side, and those are unwinding too.

Jeff Buchbinder:

So, you know, that's something that, you know, you really need institutional data to follow. But that's important. That's certainly something that we're going to be watching very, very closely. One more point on the currency markets, then I'll go to you, Lawrence, if you have anything else on that. The volatility in currency markets can translate into drags on the economy. It's kind of getting into your world, Lawrence, with the fixed income, right? The Fed, remember we talked about, I mean, this is, now I'm going back far, but when you look at the financial crisis, 2008, when you look at the pandemic, the Fed wants to make sure that global markets are functioning, the plumbing is working, right? And so if currency markets get too out of whack you know, they're probably going to be more likely to step in. We don't want to see that, but they're more likely to step in. Any thoughts on that angle, Lawrence, on sort of the transmission of currency market volatility potentially to the economy?

Lawrence Gillum:

Yeah, for sure. I mean, that's a great point. I mean, the Fed has a dual mandate, presumably with the inflationary pressures as well as full employment. But their main goal is the fully functioning of financial markets. And if we were to see financial markets, currency markets, credit markets, even equity markets, really you know, sell off broadly and indiscriminately and really you know, not function as designed, the Fed would intervene regardless of what's going on on the economic front. So we're not seeing that. I haven't seen anything to suggest that there's any sort of breakdown in the plumbing of the financial markets. I pay a lot of attention to short-term funding markets here on the fixed income side. And we've seen a generally normally operating short-term funding markets. So we haven't seen repo rates spike. We haven't seen commercial paper rates spike or anything like that. So, so far this has been a pretty orderly unwind of, to your point a trade or a series of trades that were probably, you know, too levered at this point.

Jeff Buchbinder:

Yeah, I mean, you can look back in history at almost all the corrections <laugh> and point to excessive leverage as one of the either causes, as was the case in 2008, or at least a factor that exacerbated the sell off. So certainly this, this sell off's been rapid. It's been, frankly, I'd say this, the severity of the sell off is probably most evident in the VIX, I would say. The measure of implied volatility using the options market. At one point this morning, it was over 60. It peaked in the financial crisis at around 80, I believe. Now, thankfully, that has come way down. The options market has calmed way down since that reading early this morning, and now we're in the thirties, at least at last check, we were in the thirties. That is a correction, kind of reading, but not a financial crisis kind of reading.

Jeff Buchbinder:

So we'll be watching that closely. Hopefully it's, you know, 30 back down on its way to, its long-term average of 20, give or take. And certainly, we don't want to see anything, you know, we don't want to see 60 again, that is a very, very elevated reading. Now, here's the contrarian alarm bells go off though, right? Historically, VIX levels that high tend to come near bounces. So we're not calling a low, we're not telling folks to load up the truck here. Not we're doing nothing of the sort <laugh>, right? But perhaps, you know, the best sign I've seen that we're closer to the end of this sell off than the beginning is a VIX reading over 60. I'll say it like that. And then lastly, just really quickly, you know, who are the big buyers that can step in? Well, Warren Buffet's not stepping in, he's going the other direction.

Jeff Buchbinder:

But we can see share buybacks from corporate America in size. And after this downdraft given balance sheets remain very, very strong, especially for large cap companies. And by the way, Warren Buffett, I think Berkshire has 277 billion <laugh> in cash, so maybe they'll be able to buy back their stock after this sell off today. Who knows? But buybacks are meaningful in aggregate and can certainly help us turn this market around here, especially now that earnings season is in the, you know, I guess the last quarter of the results. Once companies report, they can then buy back stock again. They get out of their quiet periods. So, so there you go. Those are some things we're watching just to, you know, kind of set up the sell off, you know, why are we here? And then you know, give you some things we're watching.

Jeff Buchbinder:

So let's get into the, some of these charts, and then we'll go to your bond market section here, Lawrence, quickly. So this is the S&P 500, you know, priced earlier today. The next key support level, I think, at least as of this chart creation is 5,227. That is a Fibonacci retracement level. And then below that we're looking at the 200-day moving average at around 5,010. So you know, that gives us a little, we're down about 8% off the recent highs on the S&P 500. That gives us a little bit of cushion before this is officially a correction. But I'll tell you that that 200-day is going to be key, and it looks in the futures market actually bounced off of it, pre-market, it looks like that is going to be the next test.

Jeff Buchbinder:

And you know, we'll see if we pass it. I guess taking a step back, you know, why could this market get support here? One reason is because of the breadth reading, it's pretty good. 69% as of this chart pricing, 69% of the S&P 500 was above its 200-day moving average. That's pretty good breadth. And then we hit the RSI 14 trigger just briefly earlier today, below 30. And now we're bouncing up above it. Again, not calling the bottom right now. We like to be patient with these sort of things and let the process play out. But typically a bounce below 30, and then a rebound above 30 on the RSI 14 is a bullish signal as well. One of the most. So that's kind of a little bit of an optimistic take on the market here, where we are right now.

Jeff Buchbinder:

Here's the VIX probably should have brought this up when I was talking about it, but look at this spike, 65. I didn't send this back all the way to the financial crisis to see a reading higher than that, but this just puts into perspective, you know, the average long term is about 19 and a half, spiked up to 65, and then came back down to the low thirties, as you can see here by these circles on this chart. You know, 10 to 20, or I'm sorry, 20 to 30 is kind of that pullback range or that correction range. We saw it in October 2022. We saw it actually in April of this year, couple other times. So that's where we think we'll probably settle out. This looks more like a correction than a, than the end of a bear of the bull market and the start of a new bear market. So let's turn this one over to you, Lawrence. Quick thoughts on the 10-year. I mean, I don't, I don't see any support unless you go way back. Where's the 10-year gone?

Lawrence Gillum:

Yeah, so we did get below our year end forecast earlier today. There had been this flight to safety trade, which I would argue is a good thing to see as the recipient of that you know, flight to safety trade, it did actually make it into the Treasury market. There was a lot of concerns about Treasuries and fixed income, high-quality fixed income, in particular, being that risk off destination. And we did see, in fact, bonds being bonds again and providing that diversification benefits for equity market tumult. So it was good to see that just broadly as a fan of fixed income, we have a slight overweight fixed income relative to cash primarily because of that optionality when things, or if things were to go sideways, as we talked about in our Midyear Outlook.

Lawrence Gillum:

If things on the economic front or whatever on geopolitical front or wherever the case may be, we talked about the optionality that you get in fixed income that you don't get in things like cash. So that we're seeing yields fall and assets flow into the fixed income markets is good to see because there was some concern there. As it relates to where treasury yields are going, I still think that we're going to end the year between 3.75, 4.25. I think market pricing right now for the aggressive rate cuts that are priced in, I think will eventually get backed out over the course of the next couple months. You could really argue that some of the move in Fed rate cut expectations is technical in nature and not an actual bet on the path of the fed funds rate.

Lawrence Gillum:

So, I still think that as these rate cuts get priced out, we end the year between 3.75 and 4.25, so you know, that's it. If the economic data weakens more than we expect, if this is more than just a butterfly flapping its wings, and there's actually a correction on the horizon, which we don't think, but if there is an economic slowdown that's worse than we expect, we could see a 3.50 or even lower on the 10-year. But that's not our expectation. So I think we're kind of back into this 3.75, 4.25 range to end the year.

Jeff Buchbinder:

Yeah. If you'll get into this when you go through more fixed income charts, I'm sure, but to get much lower or to price in, I don't know, some people are probably calling for 10 cuts at this point, to get much lower you really, you know, you can't just have a modest slow down. You have to have a recession, right?

Lawrence Gillum:

Yeah, that's right. I mean, right. So markets are pricing in, well, they were pricing in about 250 basis points or two and a half percent of cuts over the course of the next, call it 16 months. That would be almost in line with a recessionary call. So, that's why I think two, that some of this pricing has gone too far too fast. And I think, you know, some of it was just a way for, as investors are unwinding this carry trade, they're parking money into short-term cash or Treasury securities, which is impacting the fed funds rates. So I'm not completely buying what the fed funds rate market is telling us in terms of rate cuts. I think that's another reason why I do think that we're going to see some pricing out of rate cuts over the course of the next couple months.

Jeff Buchbinder:

Yeah. Well, hopefully the economic data will cooperate.

Lawrence Gillum:

Yes, that's the big question. If the economic data deteriorates more than we expect, then we could get more cuts than, or get cuts, get the cuts that are priced in currently.

Jeff Buchbinder:

Right? Right. Boy has the fed funds market had a hard time calling this economy. Yeah. How about that? That actually is a point that you might make on this slide. Yeah. So you know, really what started, other factors started the sell off, right? Again, the, you know, markets are jittery coming into the jobs report because of the ISM being weak. You know, the AI names during earnings season are getting a little more scrutiny, right? There's been more talk about maybe AI not having the payoff people expect as quickly as they hope. You know, we're hearing from some companies that consumers are pushing back on higher prices. We heard that last quarter. Some we're hearing a little more this quarter. So I don't want to make it seem like the payroll report is the only driver here. There's several drivers that sort of caused this chain reaction that, you know, has gone through the yen and through systematic trade desks and all of that. But the payroll number was a big surprise, and it moved markets quite a bit.

Lawrence Gillum:

Yeah. And we saw that in the Treasury market. We saw a big rally in rates, a big fall in yields over the course of the back end of last week. What we're showing here is the U.S. Treasury yield curve. We're showing all the different maturities of Treasury securities. So it goes from one month out to 30 years. Those each of those time periods represents a Treasury security and its respective maturity. So you can see that across the yield curve yields were lower. The two-year yield was lower by over 40 basis points, close to a half, a percent lower. 10-year yield was lower by about 40 basis points last week. So a big flight to quality, as we talked about, yields were lower. There was a time today in fact, where two-year yields and 10-year yields were around parity, we actually had a flatish yield curve with the 10-year out yielding the two-year by about, you know, half a basis point.

Lawrence Gillum:

So very small difference between 10-year and two-years. But given the fact that we've been in this inverted yield curve for the longest period of time in history it was interesting to see that that market reaction as the yield curve kind of get back to normal since I would say around nine o'clock, 10 o'clock this morning we have seen the yield curve kind of invert again. So two-year yields are lower, I'm sorry, are higher than the 10-year currently. But we are starting to get back to a more normal upward sloping yield curve which has been a harbinger of economic weakness in the past. We can talk about that if you want to get into it. But you know, right now we're still inverted. So that recessionary signal that comes from the disinversion is not in play currently. That could certainly change over the course of the next trading session to see how this works out. But big move lower in yields, big flight to quality to the Treasury market over the past week.

Jeff Buchbinder:

Yeah, massive move. You stole my thought. I was going to ask you about the recessionary signal from a disinversion, but it's hard to call it a disinversion at this point. I agree with you. Just like we want to have the stock market settle down before we think about, you know, maybe adding equities here, you know, we say at LPL Research, bottoming is a process, right? So you know, let's let the kind of the charts show us the way and let's let some of these offsides traders, let's call them, get back on sides, and and then maybe we get some more evidence that fundamentals are okay. And then there it's you know, it's time to make a move. But not just yet. So I guess this is a similar concept Lawrence, but, you know, just highlighting how big of a move we saw, but it's this more of a long-term look, right?

Lawrence Gillum:

That's right. So this is looking at what the markets expect the fed funds rate to be in December of 2025. So next December. Markets have priced in around two and a half percent of rate cuts. Remember, the fed funds rate right now, the upper bound is at 5.5%. Markets are saying that by December of 2025, that fed funds rate is going to be closer to 3%. We've seen this before. In fact, we've seen the bond market try to front run rate cuts. Mm-Hmm, <affirmative>, I lost track of how many times we've seen the bond market try to front run Fed rate cut expectations.

Jeff Buchbinder:

And I just said the bond market's smarter than the stock market.

Lawrence Gillum:

I know. I think right now that and we're going to

Jeff Buchbinder:

I retract my statement.

Lawrence Gillum:

A little bit a little bit different in just a second, but I do think that you know, again, the markets have moved too far, too fast in pricing in rate cuts, recession, particularly a deep recession is not our base case. We think there's still a lot of good things going on in the economy. So we do think gradual rate cuts are coming, perhaps not two and a half percent of cuts in this, you know, frantic <laugh> way that markets are pricing in currently. That's probably again, too much too soon.

Jeff Buchbinder:

Yeah. From seven to zero and <laugh> back to six. Yeah, I know I'm mixing my timeframes, but yeah, the market's been all over the place. We say markets don't like uncertainty, they also don't like volatility. And it's clearly, we've seen plenty of volatility in the fed funds market and in the various rates markets. So, you know, one of the reasons why you know, I just said it, that bond markets tend to be smarter than stock markets. We like to get confirmation of equity market weakness from the credit markets, right? And credit markets are maybe more closely tied to the economy than the stock markets. So I think the question here, Lawrence, is you know, are we seeing something from the bond market that we should worry about? Does this tell us that recessions coming or not so much?

Lawrence Gillum:

Yeah. So this is where things get a little bit different from what we just talked about because we've seen a big move in Treasury yields a big move in Fed funds pricing in terms of rate cuts and the potential for recessions. The credit market response though, has been very orderly. And we have seen yields rise, or I'm sorry, spreads move wider, but they're still not wide, relative to history. So this is showing the option of just in spreads or that additional compensation for owning things like high-yield bonds or investment grade bonds over the yields you can get in Treasury securities. We did see yields move wider over the course of the past week, but if you were to look at this chart and just see that last data point there, you would not be overly concerned given the historical movements in these markets when things were breaking.

Lawrence Gillum:

So we're not getting any sort of confirmation signal out of the credit markets that would suggest that the economic data is deteriorating so much that recession is on the horizon. You know, I think you could really make the argument that a lot of these markets were priced to perfection. And maybe there was some complacency in some of these markets. So the move wider in spreads over the past week was probably overdue. Right. I mean, you showed the equity markets recently, and it was almost a straight line higher in terms of equity performance. Right now we've been in this environment where spreads have just kind of stayed where they were despite, you know, historically being a little bit more volatile than what we've experienced. So, the credit markets really aren't overly concerned about what's going on in the equity markets currently.

Jeff Buchbinder:

Hmm. Well, that's certainly encouraging. We'll obviously keep watching spreads closely. And the Fed, you know, back to this narrative of, well, what do they know that we don't? If they see a problem in the lending markets, that's when they're going to potentially consider an intra meeting cut. Yeah.

Lawrence Gillum:

One other comment on this though too, while I'm thinking about it, is that the high-yield bond market is comprised of primarily three cohorts of rating companies. You have your highest junk rated companies at triple B, or sorry, double B rated, your next tier is single B rated, and then your triple C rated is the lowest quality cohort within that index. Triple C rated companies have actually outperformed double B and single B over the past week. You wouldn't see that in the event of an economic contraction. So I think this is just a repricing because of an increase in volatility and not because of any sort of economic contraction that's on the horizon.

Jeff Buchbinder:

Maybe that's what some traders were seeing when they you know, stepped into support this market a little bit today. That is very encouraging. So thanks for that, Lawrence. I guess this is a similar story, right? If spreads are tight still, even after widening a little bit, then the cost of credit protection remains low. So, this is credit default swaps. What's this tell us?

Lawrence Gillum:

Yeah, so this is the same story in that so credit default swaps are securities that provide, it's like an insurance policy for the risk of default. If the risk of default were to increase, you would see those lines move higher. And we have seen those lines move higher. But if you were to look at this chart, I mean the most recent move in either investment grade or non-investment grade it wouldn't surprise you. It wouldn't scare you. It would be something that you would consider normal. And I think that's really the case that we're getting out of the credit markets is that, you know, after a period of maybe perhaps too benign of a market environment, too low volatility, we're kind of just getting back to what is normal. So again, this is just another thing that we look at to see if credit markets are flashing any sort of warning signs and right now they're just not. Mm-Hmm, <affirmative>, that's not to say that there's not risk, of course. And anytime we see these lines move higher you stop and wonder, you know, if there's something bigger going on, and we could see these lines move higher still. But right now there isn't anything to suggest that any sort of systemic crisis is on the horizon.

Jeff Buchbinder:

Yeah, certainly these look much better than they did during the regional banking crisis when Silicon Valley Bank failed. So yeah, it's really not a you know, a solvency crisis. It's just, you know, it's volatility in the markets as you suggested, Lawrence. You know, the economy is slowing. There will be some economic impact from the market volatility, financial conditions tighten, you know, lending does get a little tougher. You know, it's kind of on the margin, but I mean, wealth effects are negative, right, when stock values go down. So there's some of that going on, but it's not dramatic. And this is where having quality companies making up the S&P 500 really helps or making up the investment grade bond market as well. So, good stuff, Lawrence.

Jeff Buchbinder:

All right, let's go to the preview for the week quickly. It's a really quiet week, but the data really matters because of what we just talked about, right? The market is worried that the economy is going to slow more than maybe the Fed thinks, or more than the market thinks or has thought. So we got the ISM services number this morning, which is a really important data point. It's, other than jobless claims, it's probably all that matters this week. You see here, I put in the actuals on this calendar look. So we got an ISM services number of 51.4, which was up from 48 8. That's a really nice bump. And it was also a little bit higher than expectations. And then all of these other sub-components of the ISM Services index were also up. Prices paid, or better than expected, prices paid and up actually services employment up nicely and better than expected, new orders up and better than expected.

Jeff Buchbinder:

So this you know, clearly it didn't help the market a ton, but this is the first step in that bottoming process, getting the market more comfortable with the economic outlook. Of course we'll have more earnings reports this week. Earnings are going to take a little bit of a backseat to everything else going on on the macro side, not to mention the risk of escalation in the Middle East, which, you know, could happen any moment. But anything else, Lawrence, that you think folks should be watching this week? You know, other than obviously <laugh>, the S&P 500 and the, you know, the 10-year.

Lawrence Gillum:

Yeah. We have claims coming out like we do every week. Yeah. That's been trending higher. You know, there's been concern about layoffs and you know, that would show up in the jobless claims numbers. But the only thing I would point out too is that what's not on this calendar this week is a lot of Fed speak, which is surprising given the fact that we had a Fed meeting, was it last week or two weeks ago last week. And you tend to have Fed speakers out there. I think, I'm not a fan of Fed speak. I think there's too much Fed speak in general. I do think that the Fed needs to make some comments here and there about the potential for waiting until September. Given the rapid repricing in Fed rate cut expectations you know, it would probably be a bit prudent to have some Fed officials out there expressing their views and if they agree or not agree with market pricing. But unfortunately, we don't have that which probably means we're going to have some more volatility this week unfortunately in the rates market.

Jeff Buchbinder:

Yeah, it's a good point. The, you know, once the Fed did their thing, the market was probably thinking, well, gosh, we have to wait until September 18 now and most likely. And, you know, the economy could weaken quite a bit. It already has maybe weaken more than the Fed had thought. They hadn't seen the jobs report, I don't think, when they issued their statement and did the press conference. So yeah, I think that contributed to the volatility, just the kind of unfortunate timing Yeah. Of the Fed meeting. It would've been nice if it was the week after the jobs report and they could have calmed some fears. But this is where we are. Fed speak can maybe help. By the way, I think the Atlanta Fed GDP Tracker is over 2% for Q3. It's very early, but you know, the data's okay so far.

Jeff Buchbinder:

We'll watch it really closely. I know that was on our list of things to watch most. In fact, it was the top of the list of things to watch most closely is the economic data. And of course, the Fed will be watching it closely as well. So last thing and then we'll wrap up. Earnings season, the numbers have been fine, right? We've beaten expectations, but the amount of the surprise has not been as high as it's been in recent quarters. So coming into this season, estimates were for nine, it looks like we're going to get 11, maybe 12, which is still really strong growth. And again, you don't get bear markets when earnings are growing double digits. Let me sneak that in there. But at the same time, you know, expectations for earnings growth are high. The slowing economy probably brings estimates down, and that may create a little more short-term volatility.

Jeff Buchbinder:

But, you know, analysts are going to come into all these conference calls thinking we're going to hear consumer slowing, consumer slowing, right? So if we hear that, you know, market might not react too much, there's the potential for expectations to get too low, and maybe some companies tell the market, you know, what demand's actually okay. And you know, that can help further the bottoming process as well. So to date, estimates have been resilient. We'll have to watch those this week as well as we get to the last 120 or so companies left to report. So with that, I'll go ahead and end. Thanks Lawrence, for sharing your thoughts on the bond market. Certainly, an encouraging message I would say, about the credit markets and what they think of the you know, the economy right now. I think on the equity market side, we'll, just

Lawrence Gillum:

Normally bond guys are the pessimistic ones. And here I am providing some good news.

Jeff Buchbinder:

How about that? We just expected gloomy. And so anything better than that, we'll call it a win. On the stock market I think it makes sense to just wait for the bottoming process to play out. Probably fastest it could be completed would be this week, but we'll have to see. You know, we've got some signs of capitulation, but it's very, very early. You know, we wrote in the Midyear Outlook that we expected a dip. We said the fair value on the S&P was closer to 5,000 on and that's, I mean, we're not even there yet. But we could be headed down there, and that would be an area maybe 5,000 to 5,100 on the S&P 500 where we would start getting more, more interested. So we'll see, we'll see what happens. Of course we'll be watching it closely. So, so thanks again, Lawrence, for joining. Thanks everybody for listening to another edition of LPL Market Signals. Actually because of our Focus conference next week, probably going to take the week off and then come back in two weeks. I reserve the right to change that plan, but for now, we'll see you in two weeks. Everybody take care. And we'll see you next time.