Weekly Macro Minute

GuideStone Reflections

Dear friends, don’t be surprised when the fiery ordeal comes among you to test you, as if something unusual were happening to you. Instead, rejoice as you share in the sufferings of Christ, so that you may also rejoice with great joy when his glory is revealed.

1 Peter 4:12 – 13 (CSB)

We tend to view suffering as an oddity, as though it were a strange break from the norm of an easy day-to-day existence. But according to Peter, it should be expected as a routine part of a Christian’s life. After all, Jesus promised that if we follow him, we will suffer for him (John 16:33). But how is it that as Christians, we can “rejoice” in suffering? Because we know that suffering precedes glory. If we share in the sufferings of Christ, then we also get to share in the glory that he receives.

The heat of suffering refines us. Apply enough heat to gold, and it turns molten. The impurities – the "non-gold" stuff – float to the top and can be strained out. Pure gold emerges from the fire. Suffering for Christ’s sake has a similar effect on the life of a Christian. It turns us molten, and our impurities float to the top for God to “strain” out. After the fire of suffering, what emerges is a person that looks a little bit more like Christ – a person a little bit more worthy of sharing in his glory.

Our gracious God is capable of redeeming anything. Including our suffering.

In the Economy

Tuesday's August Consumer Price Index (CPI) release showed that core CPI (all items less food and energy) accelerated to 0.6% month over month, double that of consensus expectations. Looking deeper at the inflation data, the headline CPI rose 8.3% for the 12 months ended in August versus 8.1% for consensus estimates. Core prices rose 6.3% year-over-year (the highest since March), partly due to a 0.7% increase in housing costs, while food and medical care prices also contributed notably. The report provided a blow to both peak inflation and peak hawkishness narratives and shifted expectations for future monetary policy significantly. The futures market has now priced a terminal rate for Fed funds near 4.5% by the end of the first quarter of 2023, an increase of approximately 50 basis points from a week ago. Our base case is for another 75-basis point rate hike from the Federal Reserve this coming week, but the possibility of a 100-basis point increase – along with a terminal rate of 5% or more – has reentered market conversations.

Initial jobless claims fell to 213K. This strength in the labor market will keep the Fed moving aggressively and make inflationary pressures more stubborn as wage pressures will remain until employment softens meaningfully. However, the list of large corporations planning layoffs continues to grow. On the bright side, September’s reading for the University of Michigan consumer sentiment rose to a five-month high, although the measure remains very depressed.

We have been banging the table all year that earnings estimates are “on the precipice of a material downturn” that will cause a further move lower for equities. After the bell on Thursday, FedEx confirmed that narrative, as it reported preliminary results well short of expectations and announced that it was pulling its earnings guidance for 2023. The CEO went on record that he expected a “global recession” and global demand for freight has “significantly deteriorated.” The stock fell 21% on Friday, its largest decline since 1980. In addition to a cut in overall earnings expectations, we believe the S&P 500® still carries a forward P/E multiple that is too high and does not reflect the likelihood of a coming recession.

European stocks generally pulled back about 2 to 3% due to continued deteriorating economic conditions and soaring inflation. Hawkish rhetoric from European Central Bank policymakers lifted yields and raised expectations of more outsized rate hikes. China led Asian market declines as continuing weakness in the property sector overshadowed the better-than-expected factory and retail data. More countries are putting COVID behind them. Case in point, Japan announced it would drop its COVID-related ban on tourists.

Across the Markets

• The S&P 500^® Index fell 4.8% on the week to hit its lowest point since mid-July, while market volatility remained relatively muted.
• Treasury yields jumped, with some ten-years hitting their highest levels since 2007.
• The week ended with the 2 – 10’s inversion at 42 basis points or back near peak levels (2-year at 3.87% and 10-year at 3.45%).
• All commodity sectors were lower on the week as dollar strength gained momentum again.
• The Atlanta Fed GDPNow model estimate for U.S. real GDP growth for the third quarter of 2022 declined sharply again to 0.5%.