Market On Open, Tuesday 6 January

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Hot Or Not?

by Alex King, CEO, Cestrian Capital Research, Inc

Midterm elections loom large on the horizon at present. No incumbent Administation wants to get hurt in the midterms, and the easiest way to get hurt is if something is amiss with the income economy and/or the asset economy. Right now the data is mixed on the income economy - corporate earnings including consumer-driven stocks are pretty good, but there is persistent noise about job cuts, hiring rates, consumer auto loans and other indicators that suggest not eveything is rosy. The asset economy is mixed - equity indices and commodities in great shape, bonds on the floor, crypto beaten and bloodied but not broken. (And threatening to roar back!).

I think this Administration will do what any Administration would do at this point, which is try to dial up the economy in all its forms running up and into the midterms. The question is whether that can be achieved without also dialing up inflation. Inflation was a key narrative in the 2024 Presidential election, one that ran against the prior incumbent and in favor of the current Administration. So it is a bogeyman that no-one in power wants to see rear its head. AI is a deflationary force and so too would be lowered energy costs - whether AI and the recently-increased span of control of the US oil industry can act fast enough to suppress the inflationary impulse of reduced bank capital requirements and various forms of fiscal stimulus, I do not know. But this is, I believe, the intended approach; run it hot but without the accompanying inflation.

Let’s check in and see how this is going.