But it hasn't. The debt market expects Greenspan will achieve a soft landing, which means corporate earnings aren't going to crash and the outlook for corporate borrowers remains positive. That's driven yields lower, which in turn has kept borrowing costs lower for companies.
There's still a lot of consumer demand out there, and as businesses try to restock their inventory levels they will increase demand, which will lead to stronger growth. That could be problematic for the Fed.
There's still a chance of a rate hike, you can never officially rule that out, but for the moment it appears the worst-case scenario will be an announcement of a tightening bias. I don't see that happening, but that would be the worst-case scenario.
The market is trying to find an appropriate valuation for those stocks. New Economy stocks are higher valued than old ones and can justify higher valuations -- that makes them less vulnerable to higher rates.
Higher rates will eventually reign in the market, but it will likely take additional moves for that to happen in a discernible way. Whether those moves actually come is something the market can put out of its thinking -- at least until May.
Consumers continue to spend their earnings from the stock market and other investments. Even with the correction we've seen recently, the average investor is still significantly ahead of where they were two years ago and is still willing to spend a little of those earnings.
Because of the gridlock, politicians on both sides of the political spectrum will have to be more acutely aware of what the voting public is leaning towards.
What's important to keep in mind is that we really only have one month of numbers that confirm the economy is slowing. What the markets want to see is more evidence of a slowdown, which is why this report is important.
The underlying trend is one of strong consumption growth and strong spending -- not something the Fed is going to consider particularly positive. The Fed's series of interest rate increases have not yet been enough to significantly deter the consumer from spending.
Now I think that perception is much, much different.
