Well... a lot.
None of it is good for the Fed's rosy economic narrative either.
Anyone anchoring their investments to the picture of positivity painted by the Fed in their meeting minutes is missing the bigger picture. First off, much has changed since the Fed's meeting about four weeks ago, especially in the labor market which FOMC members have proudly pointed to as the reality belying soft economic data.
In actuality, history tells us that jobs numbers are the last bastion of positive economic data to roll over at the end of the cycle. That's why the latest jobs data is concerning to say the least.
- The April Jobs Report was an absolute bomb, missing Wall Street consensus numbers by a wide margin and continuing to slow from its February 2015 peak.
- Jobless Claims increased 2% on a year-over-year basis, rising for the first time since 2012. Prior to that you'd have to go back to 2007 to find the last time claims were rising. In other words, the recession countdown begins.
Meanwhile, the U.S. Dollar Index is up for the third straight week, the S&P 500 is down -2% since the meeting and the all-important U.S. #GrowthSlowing indicator, the 10s/2s yield spread, continues to hit levels not seen since 2007.
For what it's worth, we've noted before that instead of data dependent, Yellen & Co. are actually "S&P 500 dependent."
All is not well abroad either.
As the U.S. Dollar has strengthened here at home, emerging markets have sold off. (Since the meeting Emerging Markets (EEM) are down -7%.) The elephant in the room, of course, is China where, in April, manufacturing data has been soft, fiscal spending is decelerating and monetary policy is becoming less accomodative. So ... not good.
As Hedgeye Senior Macro analyst Darius Dale writes in an institutional research note:
"Save for the housing sector, Chinese economic growth has clearly faltered here in APR amid tighter administered policy and increasingly hawkish policy expectations, at the margins. All told, we reiterate our structural bearish bias on China amid what is quite possibly the world’s longest list of secular headwinds – not the least of which is demographics."
All told, that's why despite delusional comments from Fed heads, like San Francisco's John Williams, calling for two, even three rate hikes in 2016, macro markets still aren't biting. The hawkish jawboning hasn't been able to push the implied rate hike probability above 30% (see below).
Clearly, there's a lot of skepticism about the Fed's forecasting credibility.
And justifiably so... we've shown before (in "5 CHARTS: Fed Forecasters Flat-Out Wrong" and "Fed Watch: Next Rate Hike In April 2018???") that the Fed's best estimates for GDP are little more than the hopes and whims of unelected bureaucrats.
All of the aforementioned risks and market selloffs don't equate to the Fed's rosy economic picture. It adds up to something else entirely...
(That's been our call for well over a year now. Our investment conclusions are working. Stick with them here.)