Wednesday's Market Minute: On The Brink

After yesterday's sell-off on ugly U.S. manufacturing data, it's clear that bad economic data now means bad things for the stock market. We've written about this before, but it’s worth reiterating that investors are eager for more than a Fed bailout, as chances of a rate cut this month did spike yesterday.

With earnings expectations for next year still eroding, yesterday's affirmation of U.S. weakness further questions the notion of a Goldilocks economy that balances both growth and accommodative policy. The consumer has been the buffer between America and the rest of the world’s ailments, but investors got a blunt reminder that eventually that gap is likely to narrow in one fashion or another. While most view this kind of softness in the U.S. economy as the nail in the coffin for global growth, it’s important to remember that for 20 months, the U.S. has been disconnected from the rest of the world.

Up until yesterday, data here was blowing past expectations, with housing leading the way, and we see that again this morning in Lennar earnings. But at 47.8, the ISM suggests our economy is on the brink. It’s the lowest in ten years, but just below levels reached in 2016 and 2011, two justifiably scary periods for the global economy that did not turn into a tailspin. The catch for stocks is that even if the rest of the world stabilizes, it’s the U.S. outlook that’s the most important to reinvigorating domestic earnings: the Fed can’t save that.

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