Here's the new dialogue: XYX CEO says he "sees no significant slowdown. Only minimal impact from government shutdown unless it lasts through this quarter."
Get used to those words. They are in play and they control a lot of stocks and what will happen next.
The first part, the "no significant slowdown," basically says that we did peak and orders have fallen off -- but mainly because of fear that we would peak, augmented by the rational actions that a company had to take when Jay Powell said he was willing to overshoot to break the pending inflation that would have to occur when unemployment got this low.
Basically, if the Fed agrees that the Phillips Curve is in play, meaning that wages have to go higher and we will soon be crippled with demand pull inflation, then you have to pull in your horns, spend less and preserve your capital.
You also have to prepare for less consumer spending. How else can you figure that sales peaked at Macy's (M) and Nordstrom (JWN) not long after the stock market got pummelled. It was all of the same psychological piece.
Now that Powell had regained his senses, though, we have the shutdown -- which is getting a huge ripple effect now that we are at day 27. Think of it like this: sure you can take 800,000 people off the spend grid as they didn't get their second pay check, but what's the multiplier effect of that when it comes to travel, leisure, domestic spend, bills not paid.
The answer is basically that you've got an uninsured hurricane going on -- and we don't even know when it will end or where it will head. The insanity of it all just can't even be grasped. I don't know if it could lead to zero GDP growth, as Jamie Dimon said. I don't know if he said that because he is trying to be a statesman -- like in explaining to Washington how much damage they can do to the psyche of America.
What I do know is that we are in earnings season and you don't want to hear either that we have slowed or that the government shutdown is going to lead to forecast cuts, because after this run from the bottom, we will not be able to handle them without taking some real hits to the midsection.
How can you protect yourself from these cautionary words? I think you have to continue to trim the shares of those companies that are related to the consumer and emphasize those that are related to secular growth trends that aren't going to let up even if there is no significant slowdown and the government shutdown drags on.
You can't game the irrational, and Washington has thrown two irrational curve balls in a row, a Fed chief who was willing to burn down the economy to save it and his reputation as an inflation hawk when the consumer price index is negative and a president and a congress that are willing to sacrifice the economy for a couple of billion dollars to build a wall. At this point I think the president could just call for donations from rich people who want a wall and he'd get more than he is asking for and we would all be better off for it.