Alli McCartney on Job Revisions, Market Multiples, and Tariffs

Labor Market Data Revisions

• 📌 The latest job growth revisions show a significant downward adjustment of 911,000 jobs, the largest revision on record.
• 💡 This revision is seen as a nod to a weakening labor market, though its impact on market reactions is muted due to its retrospective nature.
• 🧠 The discussion touches on data integrity in the age of AI, suggesting current data may be stale compared to rapid technological changes.

Interest Rate Outlook

• 📈 The current rate picture suggests a steepening yield curve, with expectations of 70-75 basis points in rate cuts this year and an additional 25 basis points next year.
• ⚠️ There is ongoing concern over the long end of the yield curve, influencing the overall rate environment.

Market Multiples and Historical Trends

• 📊 UBS research analyzed historical instances where multiples exceeded 21 times forward 12-month earnings.
• ⚖️ Historically, these periods have split evenly: two instances with easing Fed policy and growing earnings led to market outperformance, while two instances with a hawkish Fed and stalling earnings resulted in the opposite.
• 🚀 Current conditions, with earnings growth projected at 8% this year and 7.5% next year, lean towards the more favorable historical scenario.

Impact of Tariffs

• 📈 Tariffs have increased significantly, from 2% to 15% of GDP, representing a substantial rise in input prices for consumers and corporations.
• ⏳ The full impact of these tariffs on inflation is not yet fully reflected in the numbers and is expected to become apparent in Q2, Q3, Q4, and early next year.
• ✅ The good news is that there is greater clarity on the horizon, suggesting the market is past the peak of tariff-related volatility.