“The highway is for gamblers, better use your sense

Take what you have gathered from coincidence”. “It’s All Over Now, Baby Blue”, Bob Dylan

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CONCLUSION AND OVERVIEW

Given an array of intersecting considerations, critical benchmark financial battlegrounds such as the United States Treasury 10 year note, US dollar, and the S+P 500 probably will continue to travel sideways for the near term. Price trends for commodities “in general” probably will converge with those of the S+P 500 and other key global stock marketplaces, although occasionally this relationship may display divergence. 

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In America and many other key countries around the globe, uncertainties and risks regarding numerous entangled economic and political variables and marketplaces appear especially substantial nowadays. In particular, inflationary and recessionary (deflationary) forces currently grapple in an intense and shifting fight for supremacy. 

Monetary tightening by the Federal Reserve Board and its central banking comrades has helped to slash lofty consumer price inflation levels. However, despite some deceleration, significant inflation persists. Both headline and core (excluding food and energy) inflation motor well above targets  aimed at by these monetary police officers. Yet in comparison with ongoing substantial actual consumer price inflation, inflationary expectations for longer run time spans generally have remained moderate. But monumental public debt challenges confronting America and many other leading nations nevertheless arguably signal the eventual advent of even higher interest rates. And given the Russian/Ukraine conflict and an effort by OPEC+ to support prices, how probable is it that petroleum and other commodity prices will ascend again? 

Higher interest rates have diminished worldwide GDP growth prospects and raised recessionary fears. But central bankers, Wall Street, Main Street, and politicians do not want a severe recession and will strive to avoid that eventuality. 

The United States dollar, though it has depreciated from its major high milepost reached in autumn 2022, arguably remains “too strong”. However, history shows that a variety of nations elect to engage in competitive depreciation and trade wars to bolster their country’s GDP. 

Unemployment in the United States remains low, which helps consumer confidence. Sunny Wall Street rhetoric regarding allegedly favorable long run nominal earnings prospects for American stocks sparks enthusiastic “search for yield” activity by investors and other fortune-seekers. Yet Fed and other central bank tightening and economic sluggishness may reverse this healthy unemployment situation and dim corporate earnings prospects. Consumer net worth levels and patterns are important in this context. A strong and growing household balance sheet encourages consumer spending and thereby economic growth. Consumers, the major component of American GDP, unfortunately have endured damage to their balance sheet from the fall in the stocks (S+P 500 peak in January 2022) as well as the decline in home prices since mid-2022. The recent shocking banking collapses in America and Europe warn of fragilities and uncertainties facing diverse economic arenas and the value of their assets. 

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Bruce Springsteen’s song “Born to Run” proclaims: “In the day we sweat it out on the streets of a runaway American dream”.

Persistent fierce partisan conflicts range across numerous economic, political, and other cultural dimensions. This makes it difficult for politicians to compromise (witness America’s federal legislative circus), and thus significantly to alter ongoing marketplace trends and relationships via resolute substantive action. 

However, the current US legislative traffic jam regarding raising the country’s debt ceiling, if it results in default, probably will cause the S+P 500 and related “search for yield” playgrounds to veer off their current sideways paths and tumble downhill. The risk of a default, even if brief and rapidly resolved, probably is greater than what most of Wall Street, Main Street, and the political scene believes. 

In this “game of chicken” between Republicans and Democrats (and between sects within each of these parties), each of the raging sides claims to espouse high (“reasonable”; “sensible”, “good”) principles. This brinkmanship endangers the economy. The wreck of a sizeable stock marketplace plunge and spiking recessionary fears probably will terrify politicians (and scare and infuriate their constituents), thus inspiring the nation’s leaders to overcome the legislative gridlock and enact a debt ceiling increase. 

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On the Road- Marketplace Traffic (5-1-23)