Today's NFP number continues a string of economic releases consistent with recessionary levels. The recovery is rapidly losing momentum as the impact from inventories and stimulus are wearing off. There are no visible drivers to sustain the recovery or prevent declining inflation without additional drastic measures with an uncertain outcome.
Slow economic growth is consistent with IMF and McKinsey findings that deleveraging following banking crises is long (5 years average) and painful. The global economy remains susceptible to exogenous shocks.
Stock markets and other risky assets are still pricing in an economic recovery consistent with the traditional business cycle model and are prone to a pullback. High asset volatility and bear rallies (see July) are common in a low growth/recessionary environment. Not helping are that European sovereign issues remain - with banking system stress a derived concern.
With this in mind, I continue to believe low beta strategies (such as ow long US rates, core Europe, lower beta non-fin’l credits) offer better risk-adjusted returns over the medium term.
