If you grew up in the 1980s, there’s a good chance you spent a big chunk of your teenage years in an arcade. There’s also a pretty good chance that you’ll remember a game called “Missile Command,” in which you hunkered down in an underground bunker and were in charge of shooting down imaginary Intercontinental Ballistic Missiles (ICBMs) as they streaked their way toward the eastern seaboard. It was a dark (and frankly, brutal) way to turn all the biggest anxieties associated with growing up in the Cold War into entertainment for teenagers, doled out in twenty-five cent increments. But hey, at least the Trak-Ball controller was cool...

There is apparently some debate whether the missile Russia launched into Ukraine last Thursday technically qualifies as an ICBM, but Putin’s thinly-veiled message in sending the conventionally-tipped rocket toward Ukraine was nonetheless clear: All this tit-for-tat about who’s allowed to launch what type of missile at whom could lead the world down a very dark alley indeed, and for those of us who grew up in that era, it’s hard to imagine a more terrifying headline than “Russia Fires ICBM.”

...which is exactly what came across screens worldwide on Thursday. And yet markets whistled right past the event as if it didn’t happen at all. I suspect there are multiple reasons for this ambivalence. First and foremost, the launching of a few new types of missiles in some far-distant conflict doesn’t carry the fright value it once did now that news reports from every battlefront worldwide routinely count the number of incoming projectiles downed by air defense batteries the same way ESPN used to track the number of would-be threes slapped away by Hakeem Olajuwon and Dikembe Mutombo.

It's also likely that the acronym “ICBM” is mostly incapable of striking fear in younger hearts that didn’t grow up with the nuclear threat hanging so tangibly over their heads as those who lived through it. But the bigger point is really this: As throat-catchingly jarring as that headline was for those of us of a certain, uh, vintage, markets usually pay only passing attention to geopolitical events unless they directly (and immediately) impact the economy in the here-and-now. Putin’s latest nuclear saber-rattling (knock on wood) doesn’t qualify, at least not yet.

But the Missile Command metaphor is useful in another way, too: The U.S. economy continues to rain down tiny little missiles of its own on markets with slow (although troublingly steady) frequency. But someone, somewhere, is having a whole lot of fun sitting in an underground bunker shooting them down before they can hit the ground and do serious damage. Case-in-point from last week: S&P Global issued the latest update of its Purchasing Managers’ Index, which showed that the manufacturing sector is still contracting.¹ That matters, because manufacturing tends to be very cyclically oriented. That means the signal it provides into the overall health of the economy might be more relevant than its relatively small footprint compared to the rest of the U.S. economy might otherwise suggest.

But continued malaise in manufacturing was a relatively easy target for our imaginary Capital Market Missile Commanders to bring down, primarily because the much-larger services sector is still expanding at a fairly robust pace and the situation for manufacturers isn’t getting much worse. Together, these things suggest at least the possibility of continued durability for the economy as a whole, even if manufacturing continues to struggle into next year.

The next target to pop up on Missile Command’s radar wasn’t a whole lot more challenging than the PMIs: The University of Michigan’s (UMich) mid-month update on consumer sentiment came in weaker than expected, but is still bouncing nicely off the all-time lows hit a little over two years ago when recession talk was near its peak.² Moreover, tracking was aided by a simple anomaly in the UMich data: Consumer surveys tend to be distorted during election cycles, and that makes it easier to ignore them when political passions are burning brightest. Now that November’s brouhaha is behind us, the UMich (and its like-minded survey from the Conference Board,) tracking it might become a little more important.

Next target: Target. Like Walmart, retail giant Target (and dozens of their retail peers) releases its quarterly earnings on a slightly different cadence than most of the rest of the world, so when Target released results on Wednesday, it was granted a full audience. And results weren’t necessarily great: Discretionary stock keeping units have been pressured all year long, and “the consumer continues to shop very cautiously”, which was enough to compel management to lower its outlook during its call last week (which was, in turn, enough to compel investors to lower its stock price.) But its bigger peer, Walmart, fared slightly better the day before when executives there actually upped their guidance in recognition of the continued willingness of upper-income consumers to shop in its stores. So even if the continued tendency of the well-heeled to shop down-market remains a little concerning, we’ll call that one a wash, with Target on one side and Walmart on the other.

But the final missile lobbed at the economy proved, and least to my mind, a little bit harder to shoot down prior to impact: The November release of the Conference Board’s Index of Leading Economic Indicators (“LEI.”)³ The LEI is designed to predict whether the economy will continue to grow happily or contract its way toward recession, and it’s been sending on-again/off-again warnings about the prospect of a sustained downturn since early 2022.This month we’re back from the brink again with a simple warning as financial market variables within the LEI continue to keep it from devolving further, even as its non-financial components continue to weaken. More concerning, though, is the way the LEI and its today-focused cousin the Coincident Economic Index continue to diverge, much like multiple MIRVs crisscrossing in an apocalyptic sky. In the past, that pattern has portended pain for the economy, but not so this time. In fact, the flipping of the Conference Board’s switch from “recession signal” back to the slightly more pleasant “warning signal” this month is tantamount to a missile setting itself to self-destruct within our now-tortured metaphor. Still, for those of us who remain on watch for anything recessionary, that’s a big disconnect with tradition that’s hard to completely set aside.  

A quick aside about Nvidia, who released earnings on the same day as Target, but only after markets had closed. As mentioned last week, markets now pay as much attention to Nivida’s earnings results as they do to top-tier economic releases like non-farm payrolls, which gave the first half of last week sort of a wait-and-see feel that eventually proved misplaced. Nvidia’s earnings and forward guidance were neither weak enough to spark a durable sell-off, nor strong enough to catalyze a rally. That’s sort of the Missile Command equivalent of a rocket that never left the launchpad, so we’ll count it as a win even if the Trak-Ball never moved.

But here’s the thing: Like all video games, Missile Command got progressively harder the longer you played — the  the missiles eventually started screaming out of the sky at a rate that was impossible to counter, and eventually, inevitably, you lost. The takeaway might be that sooner or later, it will become nearly impossible to pluck all the missiles out of the economic sky like a teenager with a bottomless pocketful of quarters. For now, though, we can return to our regularly scheduled program comfortable in the knowledge that somebody, somewhere, is still locked in an underground bunker and still making this all go away without causing any major damage.