Business

Fink, Dimon and Musk got the blues. And one forecaster says they’re not gloomy enough

The anxious buzz among Wall Street executives is growing louder.

US stock index futures are pointing south, led by technology on Nonfarm Payroll Day. After Tesla workers’ hopes of remote work were dashed, CEO Elon Musk is now reportedly wanting a 10% job cut due to a “super bad feeling” about the economy.

It’s been a week. Comments from the world’s richest man follow America’s largest banker, JPM Morgan Chase’s JPM,
+1.61%
Jamie Morgan, who warned of an ‘economic hurricane’ and is now BlackRock’s BLK,
+3.96%
Managing Director Larry Fink said Bloomberg Elevated inflation to be expected for years to come, along with “fear bouts” leading to more market volatility.

Our call of the day Says these honchos ain’t worried enough A “deep recession” is likely to hit this quarter or early next, with US GDP estimates falling but “still too high,” says Mike “Mish” Shedlock, investment advisor at SitkaPacific Capital Management.

In his Mish Talk blogPointing to the Atlanta Fed’s GDPNow forecast, which models second-quarter GDP currently at 1.3%, versus 1.9% on May 27, he holds a “very respectable 2.9%.

Atlanta Fed, Misch

“Real retail sales were negative in the first quarter and I expect a repeat in the second quarter because I don’t think retail sales will continue,” he said, adding that disastrous auto sales hadn’t helped.

What does all this gloom mean for investors?

Note that despite Dimon’s somber outlook, his top quant strategist has been a steadfast bull in the stock market. We end this with some hopeful words from Putnam Investment’s Chief Investment Officer, Shep Perkins, who in a recent note told clients that he doesn’t see a “stagnant ’70s” episode that has led to flat markets for 10 years.

While high inflation is likely to persist, investors today have an advantage in terms of stock market composition, Perkins said in a statement. Looking at price-earnings multiples during periods of inflation since 1900, he said earnings growth would tend to hold up unless things got really bad.

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Putnam

And stock returns have still held up:

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Putnam

The final point Perkins makes is that this isn’t your parents’ stock market.

“For example, in the 1970s, capital-intensive, cyclical companies in industries such as
as energy, materials and industrials made up a significant part of the index. Today, a much larger portion of the S&P consists of high-quality, fast-growing companies that tend to be resilient in times of economic turmoil,” he said.

Bigger risks for businesses today are “technological obsolescence”. Companies in the 1970s were also more cyclical and used more leverage. “Today’s S&P leaders – higher-margin and capitalized companies in sectors like technology, communications and healthcare – are likely to achieve higher P/E multiples than S&P leaders of the past.”

“Based on history, equities face a challenge if we sustain an inflation rate of 7% or more over the next few years. However, in our view, inflation is more likely to slow as demand slows,” Perkins said.

Read: ‘A catch-and-release game’: Are recent stock market rallies the start of a bull market?

The Buzz

US nonfarm payrolls for May, due Friday, are expected to show jobs up 328k from April’s 428k, with average hourly wages rising 0.4% to 0.3%. Data is due at market open, with the Institute for Supply Management Services Sector Index at 10:00 am ET.

At 10:30 am EST, Fed Vice Chair Lael Brainard will speak, a day after dousing a “pause” in September’s rate hikes with cold water.

Tesla TSLA,
+4.68%
The stock is down about 3.5% premarket. Musk also chatted with the CEO of Australian tech group Atlassian on Twitter, who said the EV maker’s apparent views on working from home are straight from the 1950s.

sportswear manufacturer Lululemon LULU,
+4.35%
Inventories have risen after better-than-expected sales despite inflation and supply chain disruptions. software security group Crowdstrike CRWD,
+7.79%
received no boost from better than forecast results or higher guidance.

cryptocurrency exchange Coinbase COIN,
+7.56%
announced an indefinite hiring freeze and will withdraw “a number” of previously accepted job offers. That comes a day after the billionaire Winklevoss twins announced cutbacks at their own crypto firm, Gemini.

Walmart WMT,
+1.64%
said it will build four new high-tech fulfillment centers, one 45 minutes from Chicago, that will create 1,000 new jobs.

President Joe Biden wants to restore a ban on the sale of assault weapons and high-capacity magazines.

The markets
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Uncredited

US Stock Index Futures ES00,
-0.51%

YM00,
-0.32%

ES00,
-0.51%
are lower, with bond yields of TMUBMUSD10Y,
2,920%
Flat and oil prices CL.1,
-0.55%

BRN00,
-0.45%
also down. bitcoin BTCUSD,
-1.42%
is over $30,000 again.

The graphic

That Market Ear blog shares this chart Tier1Alpha showing the rise and fall of Cathie Wood’s ARK Innovation ETF ARKK,
+7.36%
against the dot-com bubble of 20 years ago.

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Tier 1 Alpha/Market Ear

“ARKK’s dot.com Analogy diagram continued to work very well. Do we start chasing dogs like ARKK when this upward pressure intensifies? It would be almost too perfect,” writes Market Ear.

The tickers

These were the most searched ticks on MarketWatch as of 6:00 am Eastern Time.

Random Reading

The Queen’s well-wishers on her jubilee milestone include North Koreas Kim Jong Un.

If in Turkey…sorry,“Tur-Key-Yay”.

“Srery”, “drimys”, “pullulation” – the 13-year-old wins a dramatic Spelling Bee showdown.

Why you might want to give donut tag a hard pass.

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https://www.marketwatch.com/story/fink-dimon-and-musk-have-the-blues-and-one-forecaster-says-theyre-not-gloomy-enough-11654253440?rss=1&siteid=rss Fink, Dimon and Musk got the blues. And one forecaster says they’re not gloomy enough

Brian Lowry

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