Here's What Just Happened to the Stock Market and the Economy

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, it has been a week. Isn't that a fair way to say it?

Tracy Alloway (0:21)

I am so tired.

I got about two hours sleep last night, and there's just been so much that happened. We were both at Milken in Los Angeles, and for anyone who's ever been at Milken or any large conference for that matter, it is just a whirlwind of meetings and discussions, and we also recorded a couple episodes. And meanwhile, against that entire background, the news is actually happening. The Fed raised rates by 50 basis points, and the markets crashed.

Joe Weisenthal (0:53)

They did not have, they had some rough days, that's for sure. They had crash.

Tracy Alloway (0:58)

Okay, crash, okay. The markets went down.

Joe Weisenthal (1:00)

The markets had some really rough days, and particularly tech growth, that kind of stuff. It just continues to get absolutely killed.

We also had a jobs report. We're recording this, what is, speaking of being really tired and out of it.

Tracy Alloway (1:15)

May 6th?

Joe Weisenthal (1:17)

We're recording this May 6th. We also got a jobs report today, which seemed decent.

There is a lot going on right now. And yeah, like we were at this conference, I kind of feel like I missed a lot of it. I almost wish I was just behind my computer the whole time.

Tracy Alloway (1:29)

Yeah. That's a very Joe thing to say.

Well, one thing that was interesting to me, so I was actually at like a credit market panel right when the Fed raised rates. And I got my phone out and I started videoing the audience because I thought like maybe the headline would come out.

Right, something would change in the room. Absolutely nothing happened. I mean, the 50 basis point increase was well telegraphed, but the really interesting thing was we didn't even really get much of an immediate reaction in the market. It wasn't until the next day on Thursday that everything started happening.

Joe Weisenthal (2:05)

Market soared on Wednesday. I think the NASDAQ was up like 3%. It was like, oh, coast is clear. They took 75 basis points off the table. Maybe Powell sees some signs of inflation turning a corner, and then the market's tanked.

We have two great guests this time, excellent commenters both. I want to welcome to the show Luke Kawa. He is an allocation strategist at UBS Asset Management, as well as Neil Dutta, head of economics at Renaissance Macro Research.

I think it's Neil's first time on the show, which is amazing because we've known Neil for years and been big fans of his work. So thank you both for coming on the show. Neil, that's right, you haven't been on Odd Lots before, is that correct?

Neil Dutta (2:49)

I haven't Joe, what took you so long?

Joe Weisenthal (2:51)

I know, I know, it really is shameful, but big week and you are one of the names we needed to call, so hopefully that makes up for it. But let's start with you, like what's going on? What's your read of everything?

Put it in a tweet for us.

Neil Dutta (3:07)

Oh, I think the economy is fine.

I think obviously if you look at just the total hours worked so far this year, it's running around three to three and a half percent, so aggregate hours worked.

So if you assume underlying productivity growth of conservatively around 1%, I think underlying economic growth is around four to four and a half. So I'm not particularly worried about the economy, but clearly there's an adjustment that's happening with respect to the interest rate outlook. That's been going on really all year. And I think that's having some predictable consequences on equity markets. I don't know what happened one day. I mean, the Fed signaling something and the market rips and then the next day, the market tanks. I mean, it's a very bizarre sort of situation, but generally speaking, what I can tell you and what I've learned throughout the years is that, the economy is a much slower moving entity than the financial markets. And ultimately good economic news can help turn the financial markets. And my sense is that whatever sell off we have seen and tightening of financial conditions we've seen isn't gonna have a significant impact on the economy. I mean, in the sense that relative to what's baked into the consensus. Remember the consensus expects a slowdown this year. That's what's priced in. If you look at the blue chip consensus, it's at 2.3 for this year, the Fed's at 2.8. So you're gonna see some slowing. And when the economy slows, there'll be some days where the news comes in good and some days when it's not.