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The vibecession* – the deep sense of economic pessimism among consumers, businesses, and the media that set in after the pandemic – might be over. Friday’s University of Michigan survey illustrated a massive improvement in inflation expectations and consumer sentiment, and the San Francisco Fed’s daily news sentiment index has turned strongly upward, putting the three-month moving average very close to positive territory:

This isn’t to suggest that a real recession isn’t around the corner – we still think one probably is – but stories do play a powerful role in determining how markets and economic actors behave. A further melt-up in risk assets looks entirely possible if inflation keeps falling, the Federal Reserve continues to make reassuring noises, and media outlets manage to limit an institutional (and evolutionary) preference for pessimism.  

*Term coined by Kyla Scanlon in an August 2022 New York Times article here

 

Will the positive vibes last?
Markets Recover As Geopolitical Risk Premia Evaporate
Sentiment swings
Israeli Strike Triggers Short-Lived Volatility Spike
Dollar Juggernaut Slows, But Remains Powerful
Higher for (even) longer