Wall Street continues to debate whether the US economy is tipping into recession. Bears are pointing to several "red flags" contained in recent economic data, including a decline in manufacturing activity, a slowdown in the labor market, and tightening lending standards. Not surprisingly, recessions are typically bad for stocks - since 2000, the S&P 500 fell an average of -18.58% over the entire course of a recession, and a peak to trough decline of -38.61%.

It's worth noting that stock prices tend to pull back the steepest during the early part of a recession but they also tend to recover before the economy does. It's also important to keep in mind that not only have stock markets recovered from every past recession, they've gone on to surpass their pre-recession levels. The downside to that is it has sometimes taken several years for that recovery to play out. It took the S&P 500 895 trading days, or nearly 2 1/2 years, after the end of the "Great Recession" (2007 to 2009) to recover to its pre-recession level.

Many bears believe that even if the US avoids recession, tighter lending standards alone will create a challenging environment for both businesses and consumers. If businesses can't borrow money, they are less likely to be expanding and creating new jobs. A lack of new jobs means fewer opportunities for workers to increase wages, which in turn could mean little to no growth in consumer spending and stagnating profits for businesses.

The real kick to the gut scenario for investors would be for growth to plunge and inflation to remain elevated, forcing the Fed to keep rates higher for longer and likely extending a drought in corporate profit growth. However, many bulls remain pretty optimistic about corporate margins even in the face of an economic downturn after companies streamlined operations and raised prices - sometimes multiple times - in order to combat inflationary pressures over the last couple of year.

Meaning that corporate profit growth may slow during a downturn, but companies are less likely to be outright losing money. Bulls also still believe that an end to the Fed's rate hikes will provide a tailwind for stocks, as well as help the economy avoid recession. The trade seems to currently be thinking there's about 70% odds that the Fed will hike rates one more time at its upcoming May 3rd FOMC meeting. The odds actually ticked up a bit late last week after Wall Street digested another round of strong US labor data and wage inflation that's still above +4%.

The trade then thinks the Fed will pause at its June meeting, and gives odds that are about 50/50 on if the Fed will start cutting rates by its July 26th FOMC meeting.

There is not much on the agenda for today with the Small Business Optimism Index the only economic data of note. The earnings calendar is likewise light with just Alberstons and CarMax scheduled to report.

Where Job Openings Are Declining: Employers took a chill pill, and the hiring frenzy we saw over the past two years is fading out a bit. The number of job openings declined across almost all industries in February from this time last year, according to new government data. Industries with the biggest pullbacks in job openings are ones that had an easier time staffing up in the ultra-hot labor market like white-collar business services. Those professional sectors take a longer-term outlook when it comes to hiring, says Nick Bunker, head of economic research at the jobs site Indeed. Industries tied to the prospect of future growth are pulling back the most, according to Bunker. It's worth noting that there are still many more job openings now than there were in February 2020 but this isn't the same job market we had back then. Source Axios

Lenders Lost $301 for Each Mortgage They Made Last Year: The housing environment is so unaffordable that certain banks lost money for each mortgage they financed last year — the first time that's ever happened, according to the Mortgage Bankers Association. In 2022, independent mortgage banks and mortgage subsidiaries of chartered banks banks lost an average $301 for every mortgage they financed, the MBA said in a recent report. That represents a -113% decrease from last year's average income of $2,339 per mortgage, and is the first time that banks posted negative profits for financing home loans since the MBA began recording profits in 2008. That's largely due to the decrease in housing activity, MBA's vice president of industry analysis Marina Walsh said in a statement. Banks and other mortgage companies each financed an average $2.6 billion in loans in 2022, roughly half of the $5 billion figure for 2021. Meanwhile, the cost of financing a loan has gone up, as the decline in workers isn't fast enough to make up for the decline in business. Banks and mortgage companies spent an average $10,624 to finance each home loan in 2022, representing a +23% cost increase from 2021 Source Insider

A Record Number of People Have Car Payments of +$1,000-a-Month: Just how much pressure American car buyers can bear is going to be a question automotive investors will wrestle with in 2023. It feels almost impossible that the answer will end up being positive for automotive-related stocks, though the consumer’s resilience up to this point has been something to behold. The percentage of people paying $1,000-plus a month for their personal transportation hit a record in the first quarter: 16.8% of consumers who financed a new vehicle are paying four-digit figures, according to auto industry data provider Edmunds. That compares with 15.7% in the fourth quarter of 2022 and 10.3% in the first quarter of 2022. In the first quarter of 2021, only 6.1% of new car buyers were paying more than $1,000 a month. And monthly payments are soaring despite higher down payments for vehicles. The average down payment for a new car in the first quarter was just shy of $7,000, a record, up almost $1,000 from a year ago. Source Barrons

Parents Sacrificing Own Financial Security to Support Adult Children: Entering adulthood is hard. But parents say financially supporting grown children is harder. Nearly 70% of parents with kids 18 or older say they’ve sacrificed their own finances to help them, according to a new Bankrate report. About half are forking over emergency savings or delaying paying off debt for the sake of their children. And as the market turmoil creates a $7 trillion retirement-savings shortfall, 43% say supporting their adult kids has been draining their retirement funds. Gen X parents, which the survey defined as those ages 43 to 58, were more likely than baby boomers to help their children, with 36% reporting that they made a significant monetary sacrifice. Younger generations facing high living costs and wages that aren’t keeping up with inflation tend to be worse off than their older counterparts were at the same age. That’s created a generational clash over when people should starting footing their own bill. While members of Gen Z on average tend to think 22 is the benchmark for covering their own expenses, Baby Boomers said kids should be on the hook for their bills closer to age 20. Source Bloomberg

Apple's Mac Shipments Fall More Than -40%: Apple’s worldwide computer shipments fell 40.5% year over year in the first quarter of 2023, amid a broader contraction in consumer demand, according to research firm IDC. All five of the largest computer makers — Apple, ASUS, Dell, HP and Lenovo — saw double-digit drops in first-quarter shipments, reflecting weaker demand and persistent inventory woes. But Apple’s decline was the biggest of the bunch. Apple’s worldwide PC market share dropped between the first quarter of 2022 and the first quarter of 2023, from 8.6% to 7.2%, according to IDC data. The company shipped 2.8 million fewer devices year over year in the first quarter of 2023. “The preliminary results also represented a coda to the era of COVID-driven demand and at least a temporary return to pre-COVID patterns,” IDC said. “Even with heavy discounting, channels and PC makers can expect elevated inventory to persist into the middle of the year and potentially into the third quarter,” IDC researcher Jitesh Ubrani said in the report. Source CNBC

FedEx Overhaul Contemplates a Future With No Drivers on Payroll: FedEx Corp's vast and complex system of overlapping delivery networks will be simplified with the integration of its two largest business lines in the most sweeping restructuring in its 50-year history. Chief Executive Officer Raj Subramaniam calls it “a more holistic approach to how we move packages” that will help the company save $6 billion by 2027. The overhaul centers on a merger between its Ground unit, which uses non-employee contractors to move parcels, and its Express division, which hires only staff drivers. With volume expected to migrate to the lower-cost Ground unit, experts predict the company will lean more toward contractors — and potentially do away with staff drivers entirely. The move would draw a sharp contrast with rival United Parcel Service Inc., which has long earned higher margins even with a fleet of highly paid, unionized staff drivers. Source Bloomberg

FBI Warns Against Using Public Phone Charging Stations: The FBI recently warned consumers against using free public charging stations, saying crooks have managed to hijack public chargers that can infect devices with malware, or software that can give hackers access to your phone, tablet or computer. "Avoid using free charging stations in airports, hotels or shopping centers," a tweet from the FBI's Denver field office said. "Bad actors have figured out ways to use public USB ports to introduce malware and monitoring software onto devices. Carry your own charger and USB cord and use an electrical outlet instead." The bulletin didn't point to any recent instances of consumer harm from juice jacking. The Federal Communications Commission has also warned about "juice jacking," as the malware loading scheme is known, since 2021. Source CNBC

Bosses Want Hard Workers—So They’re Hiring Older People: Older workers are in demand at a growing number of companies. Perceptions of generational differences don’t always match reality, but three-quarters of people 65 and older said in a Wall Street Journal-NORC survey of Americans’ values last month that hard work is very important to them personally. Among 18-to-29-year-olds, 61% said hard work is very important. People 55 and older are the fastest-growing segment of the workforce, according to federal data. Demographic shifts help explain the trend—people are living longer and having fewer children—and some retirement-age folks have little choice but to work because of inflation and a weak stock market. But certain businesses are targeting seniors on the premise that age is an asset. “With the economy slowing down, companies need fewer people and need the people who are there to be OK with working hard,” said Johnny C. Taylor Jr., chief executive of the Society for Human Resource Management. “Instead of trying to convince younger generations to be something different, some companies are saying, ‘Why don’t we just go hire people who are naturally predisposed to work harder?’” Source WSJ

Most Americans Not Confident in Reliability of Crypto: Crypto markets are taking hits from all sides – from declines in value to multiple corporate bankruptcies to lawsuits and regulatory threats. Among the vast majority of Americans who say they have heard about cryptocurrency, three-quarters say they are not confident that current ways to invest in, trade or use them are reliable and safe, according to a Pew Research Center survey. This comes out to about two-thirds of all U.S. adults. Those ages 50 and older who have heard about cryptocurrency are more likely than their younger counterparts to say they are not confident in its reliability and safety. Women are also slightly more skeptical of investing in, trading or using. Overall, 17% of U.S. adults say they have invested in, traded or used a cryptocurrency. This share is mostly unchanged from previous surveys conducted in 2021 and 2022. Source PewResearch

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