Michael Wilson, the chief U.S. equity strategist at Morgan Stanley MS, added that “over the past two months, the U.S. equity market has moved decidedly more defensive and value is showing more persistent performance versus growth.” This move toward defensive sectors and value strategies indicated that the market is concerned about growth fading later this year and next.
Sub-4% Jobless Rate Signals a Recession
Some may argue that a healthy labor market in the past couple of years in contrast to the dark days of the Great Recession will certainly help the broader market gain traction. After all, the unemployment rate remains below the 4% mark for the past several months, weekly jobless claims touch a 49-year low and wage growth hits the fastest pace since 2009.
But, historically, whenever the unemployment rate fell below the 4% mark, the economic cycle matured, the labor market tightened and inflation became quite a bother. This in turn indicates that a recession and a bear market are knocking at the door.