Alpine Macro put together an interesting set of charts with commentary. Let's take a look.
I am doing this in a guest post format, without blockquotes. You can download the entire article here as a Seven Steps and a Stumble PDF. I post major excerpts below, but not the entire article.
Suspended on the Brink
The MSCI All-Country World Equity Index has been stuck in a tight range since January of this year (Chart 1), but it now seems as if it is suspended on the brink of a sharp fall. With the Fed having already delivered seven rate hikes since January 2016, the central bank has become even more hawkish at a time of escalating trade tensions between the U.S. and its trading partners. The risk of policy overkill is escalating, and, as such we are downgrading global stocks and moving to overweight bonds versus equities.
I don't expect a recession in the U.S. economy, but downward pressure on equities will likely be sustained unless or until the Fed backs away from its hawkish stance and/or the White House eases its harsh rhetoric. Both may happen in the third or fourth quarter when the U.S. economy softens, inflation calms down or the mid-term elections are over. Until then, bonds are a better bet than stocks.
U.S. Household Sector: Real Income vs Real Consumption
Chart 2 shows that Americans' real disposable income growth is 2% and real private consumption is growing at a similar rate. With the savings rate having already fallen to 2.5%, which is close to a record low, it is almost impossible for consumers to double their real spending growth, unless they take on lots of leverage. Yet, consumer debt has been growing at a very subdued pace.