The Calm Before The Storm?

• Emphasis mine:
• The Calm Before The Storm?
  by Joseph Y. Calhoun, http://www.alhambrapartners.com/
  … In looking through the data released last week one is hard pressed to find a report that was unambiguously positive outside of jobless claims which hit a low last seen in the early 1970s. The rest of the data ranged from uninspiring (retail sales) to awful (Empire State and Philly Fed surveys) to deflating (CPI and PPI) to blamed on exports (Industrial production) to recessionary (Inventory/sales ratio), to a bit surprising (JOLTS report which showed a drop in job openings).
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  The idea that an economy that performs so poorly that it keeps the Fed on the sidelines is good for stocks is one that can only be based on recent history, one that starts after the 2008 crisis. For if one looks even a bit further back it becomes pretty obvious that if the economy is headed for recession there isn’t an interest rate low enough to prevent it. The Fed was cutting rates furiously as we entered both of the last two recessions and the only thing that will prevent that from being true at the beginning of the next recession is that the Fed has wasted their chance to get off the zero bound. The fact that the market has now pushed the Fed’s first rate hike out to March of next year is not, contrary to recent market action, good news for investors.
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  At some point bad news will be bad news for stocks again but the rest of the markets are already reacting to the bad news as if it were exactly that. It is more than passing curious that while stocks took all that bad economic news as a reason to be bullish, other parts of the market were not as sanguine. Bonds rallied all week, Treasuries leading the pack with the 10 year Treasury at one point dipping below 2% again. The Fed may think rates need to be higher but the market disagrees vehemently. Bonds at the long end of the Treasury curve were up more than the S&P 500 –  in a good week for stocks – while high yield bonds managed only a token gain. Bond investors aren’t buying the stock rally, refusing to take on additional risk in the face of weak data.
  …
  I have no idea what that shock – minor or major – might be that pushes the economy over the edge into contraction. I also have no idea when that might happen; it could be weeks, months or years but as we’re seven years into this expansion, it seems more likely it is one of the former than the latter. Widening credit spreads, Treasuries and gold outperforming stocks indicate that some parts of the market are already preparing for the storm. Stocks are about the only asset yet to batten down the hatches. If this is the calm before the storm, stock investors are about to get swept overboard.
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