Small-cap stocks are not signalling recession

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Good morning. After somewhat disturbing correction, the stock market is now published two days of solid gains. Intel, who appointed a new executive, increased by 30 percent in less than a week. Can a new president make a big difference? Email us: Robert.armstrong@ft.com and iden.reiter@ft.com.

Do not read much in small hats

Do you remember the idea that small stocks in the United States will be the great beneficiary of Donald Trump’s economic policies? He remembers it well, because we fell into it, if only for a short period. For a moment, everything looked very logical: tax cuts and the abolition of restrictions would enhance the local economy, and small Caps sales are much more than the large maximum, while their profits are more economical. So in the autumn rally small hats, we saw (and others) the arrival of the Trump boom.

Well, eh, about that. We are still waiting for tax cuts and the abolition of restrictions. It has been shown that the customs tariff, or more accurately about the customs tariff policy, has a dramatic negative impact on local Feelings – consumer, business and investor alike. Small hats were struck in return. The S&P 600 has decreased by 16 percent of the November summit, even after its rise in the past two days. The narration has been reversed as due: the sale of the small cover is now read as an omen in Trump’s stagnation.

During the weekend, my Excellent colleague, Joe Renison, wrote an article in the New York Times entitled “This stock market index, a clear warning about the economy.” It makes the central points on the top local exposure to small covers, the most thinnest margins and periodic materials, and so on. It is quoted by the David Kelly strategy from JPMorgan Asset Management to summarize things: “If you want a clear indication that the market is concerned about stagnation more than anything else, then look at Russell”, referring to the broad -bold index.

After you are very credible about the power of the little prophecy in the small hats once, we will not do it again. Gil Curry Hall, a strategic expert at Bank of America, also indicated in the memorandum last week, 15 percent declines in small CAP indicators are more common than stagnation. It occurs, on average, once every year and a half or so, and sometimes several times in one year. The last of which was in 2023, and there were two in 2022.

Moreover, Hall argues that small cover indicators are twice as much as they have a medium stagnation as they have this time. There is a long way to go before we reach the recession.

Another way to read the decline in small hats is: as a technical product for the changing market system. Jordan Erfing, a small American director and a medium in Gllemped, argues that small hats are “not interested but largely circulating”, which means that they are not well represented in a long -term portfolio. Instead, it is used extensively as a commercial factor – along with other factors such as value, growth or quality. Factors are compounds of betting on the direction of the market. “My feeling is that we see a decline among merchants, not a surrender between investors,” says Erfing. It is agreed on the problem, as it is noted, is the hesitation of the smaller companies, in the face of uncertainty in politics, in providing clear guidelines forward with the results of the fourth quarter. This lets investors focus on the current moment, which is very bleak.

It is important, at this strange moment, focus on what we know, not extrapolation strongly. What we know is that the Trump’s chaotic policy approach has a terrible impact on feelings. But we also know that difficult economic data is still good (see the next piece). So the correct question is not: “Are we going to recession?” This exceeds the next. Instead, I ask: “What are the possibilities that the chaos of politics or worse will improve?” More about it in the coming days.

Consumer spending: bad reactions, OK data

The retail sales report came in February yesterday, carrying mixed messages. The address number increased by 0.2 percent than the previous month – much lower than the consensus estimates of 0.6 percent. There was also a declining review of the January -0.9 percent report per month to -1.2 percent. This may indicate the slowdown in the American economy:

But the title is a little deceptive. More importantly, it is mainly reading the “Control Group” – basic retail sales “, with the exception of the volatile chain such as gasoline, building materials and car dealers. This is a measure that directly nourishes in the anesthetic domestic product consumption scale. Control reading increased by 1 percent a month, which resulted in the reading compensation by 1 percent of January. “An explosion”, according to Rosenberg Research:

Therefore, the report appears to be a confirmation of the direction of “bad economic feelings but good economic data.” But there were signs of weakness around the edges. The estimated spending of the consumer decreased in a few decisive groups – especially restaurants. It can reflect stronger sales in other categories “people [continuing] Samuel Thompses, the chief American economist in Pantheon for the total economy, said that providing strong goods to avoid high prices related to future tariffs.

However, the mostly slowdown is positive reactions. The spending data that the Bank of America extracts from millions of debit customers and credit cards is confirmed. Home spending increased by 0.3 percent a month in February, and Bofa, an improvement during January. But again, there was a weakness in the important estimated categories, especially travel. The spending has decreased significantly in the capital of the capital, where the demobilization operations are concentrated from Elon Musk Helver-Sikert Doge.

We do not know the time when bad feelings can remain consistent with solid spending. But the answer is not “forever.”

(Reich)

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