Confidence carries a lot of weight. You can be a literal expert in your field, but if you don't communicate your views with an unwavering level of confidence, they may not be heard. On the other hand, someone can share a pure hypothesis with such confidence that those receiving it take it as fact and share it with others (see social media). My partner calls it “saying it like this,” while making a commanding hand motion—something I am still working on.

In the world of markets and the economy, this also applies. Strategists (yours truly included) provide data-based viewpoints on the future. So it’s always good to take a market or economic point of view with some skepticism.

For example, back in October 2022, I shared that 73% of economists surveyed by the World Economic Forum expected a recession. Since then, the S&P has rallied +20% (see chart below), and the economy is showing consistent signs of strength with a still good labor market and healing inflation. And wouldn’t you know, the May 2023 version of that survey showed that only 45% of economists expect a recession—a 28% drop in negative economic outlooks.

So I decided to check myself. At the time, I agreed a recession could have been declared, but I also believed the markets had already included that in valuations and were close to a bottom. Looks like that was not a bad view.

More recently, in mid-June, I shared that valuations in the larger-cap tech space were no longer as attractive but small-cap and value stocks were, mentioning industrials, financials, and parts of retail. With lower inflation, still good growth and lower recent returns than tech in these sectors, I thought they would catch up. Since then, these sectors and areas have all rallied more than tech stocks (see chart below).

My views today have evolved—and instead of sharing them neutrally, I’ll attempt to put more confidence behind them. So here goes:

Generally speaking, the economy and market is giving off  “goldilocks” vibes right now. Not too hot, not too cold.

• Core inflation (excluding food and energy prices) has started to drop

• Employment is still good 

• The Fed gave banks the gift of time, supporting their funding needs and getting the bad businesses sold. Plus, it pushed some banks to finally pay more interest on their deposits to keep their customers.

With rates likely to go only a little higher from here, I think this “warm” trend can keep going in the medium term—and we do get our soft landing.

Looking forward though, I can’t see a world in which we don’t see:

• A Fed that still talks tough—but doesn’t act much tougher. They are expected to raise rates today at 2 PM ET by 0.25% and potentially one more time thereafter. But with market conditions easy and wage inflation still a bit stubborn, they have to stay tough on their messaging (and of course stick to their data dependency on making future decisions). I think “the tough talk” could cause some short term market volatility now—meaning a short-term correction down.

• Rising pressure on commodity prices. You often can't have a good economy without some. Commodities like oil, wheat, and copper have all fallen quite a bit over the last 12 months, but they have been creeping higher over the last three weeks. With stable demand, a potential for better growth in China, an OPEC that wants higher oil prices and risks from the war in Ukraine, I think this could continue. With this, comes some likelihood that headline inflation stops dropping… which is why the Fed still needs to talk tough.

• The bar for the tech sector stays high. Earnings season is in high gear and tech companies are the favorite, but the real improvements above expectations may still come from the more undervalued sectors mentioned above (small cap and sectors such as industrials, parts of retail, and energy). As a result, I think it will be tough to see a big S&P rally, but several below the surface. Make sure your portfolio is balanced, not too concentrated in one stock or sector like tech.

OK, so I guess I still have work to do on “saying it like this.” It’s just tough to ignore that the future and certainty aren’t two words that typically go together… and you’ll never be right all the time.