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Comerica Wealth Management questioned the market narrative that the U.S. is pushing into a recession – fears of which have sharply driven down stocks – but the firm’s chief investment officer said a bumpy ride awaits markets.
U.S. stocks (COMP:IND)(SP500)(DJI) sold off for a third straight session on Monday. The S&P 500 (SP500) on Monday fell 3%. Losses have been largely stoked by July U.S. payroll additions slowing to 114K, below the 180K consensus estimate. Yields (US2Y)(US10Y) have also been sliding. The jobs report suddenly shifted the market narrative on the U.S. economy, Coamerica said in a note Monday.
“Does a miss of 60K jobs really point to recession?,” John Lynch, chief investment officer at Coamerica, said. “It’s been less than two weeks since the second-quarter GDP report surprised to the upside, with equity markets hovering near record levels, yet there is growing sentiment is that the Fed has waited too long to cut interest rates and is now behind the curve,” he said.
“While we’re not completely sold on the new narrative, the one thing that seems certain is that there is more volatility ahead,” he said. The CBOE Volatility Index (VIX) – sometimes called the market’s fear gauge – on Monday surged above 20, which historically points to further volatility, Lynch said.
The jobs report was “troubling” at the headline level, but Hurricane Beryl, which made landfall in Texas at the beginning of the reporting period in early July, may have been distorted the report, Comerica said in assessing payrolls data.
“We believe Friday’s jobs report and ensuing market sell-off was a perfect storm of volatility for the start of the seasonally weak, dog days of summer,” Lynch said. “We’re not convinced that a ‘miss’ of 60,000 jobs portends imminent disaster for the U.S. economy.”
Lynch said currently, Comerica fundamentally continues to anticipate below consensus index profits of $237.50 this year, with a year-end fair value estimate of 5,250 for the S&P 500 (SP500).
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