I had an interesting experience on a plane last week (no, this isn’t one of those Tik-Tok-able moments where someone gets tossed onto the tarmac halfway to their destination for letting their emotional support pig loose in Economy+, nor is a case of someone aggressively booted by a flight attendant for sagging their jeans too low. Sorry, but that’s what YouTube is for...) Instead, what caught my attention was the fact that the three rows surrounding my seat were entirely empty.

That hasn’t happened in a long, long time – in the last several years, it’s been far more common to have my carry-on bag gate-checked for a lack of overhead space or to be asked to volunteer my seat because the airline overbooked the flight than it is to have the freedom to stretch my legs and puke out my laptop and various carry-ons onto the adjacent seat with impunity. And at first, I was tempted to use this happy-at-least-for-me anecdote to riff on the health of the economy: After all, as we’ve written here, one sign that the post-pandemic consumer splurge is ending is that travel spending seems to be slowing and airlines have, at least until recently, liberally used phrases like “over-capacity” when discussing quarterly results.

But those hopes were dashed on the return flight home, because that flight was – truer to form – fully booked (thankfully, I boarded early enough to be spared the first-world annoyance of being gate-checked.) But still, any thought I had of using my experience on the outbound flight to finally say “I told you so...” about a weakening economy ended abruptly when the two people next to me checked in and took their seats, thus filling the plane to capacity.

But this round-trip experience still has some relevance, because it highlights an even bigger point about the current state of the US economy: it’s lumpy. Just like it would be incomplete to use an empty outbound flight to draw any conclusions about the health of the consumer without also assessing how packed the return flight is, it’s also premature to conclude too much about the overall health of the economy using a single economic indicator. Case(s) in point from this week: the University of Michigan’s consumer sentiment survey improved noticeably as consumers digested September’s rate cut, even as both the Conference Board’s Index of Leading Economic Indicators (LEI) and the Chicago Fed’s National Activity Index (CFNAI) tacked lower.^1,2,3 For its part, the LEI once again tripped the “recession warning” trigger – sort of the economics equivalent of someone’s wandering toddler accidentally stumbling into the emergency exit door at the gate and sending a shrill (but nonetheless easily ignore-able) alert throughout the whole terminal.

All this ambiguity still feels weird to me: economic indicators like the LEI, the UofM and dozens of others usually align in one direction or the other in fairly short order, and when they do, we have a clear answer about whether the economy is contracting or expanding. Not this time: whether it’s the difference between the spendiness of the high-end consumer versus the stress on the paycheck-to-paycheck crowd, or the Jekyll-and-Hyde performance of the Purchasing Managers Indices (which once again showed manufacturing contracting while services picks up the slack when S&P Global released its “flash” estimate last week⁴,) this is still a hot-and-cold economy that, on average, is probably not yet hot enough or cold enough to draw any big conclusions about how warm the porridge actually is. (Writer’s note: I tried to pack another mixed metaphor in there just for good measure, but three in one sentence is enough for anyone, even me...)

Before we leave the subject of round-trips for good, there was another one completed this week that is infinitely more important than my private travel travails: Bond yields. Ten-year treasury yields poked their head back above 4.2% last week, something that undoubtedly caught the market’s attention in a far more concrete way than my extended legroom riff. And it was almost certainly a key contributing factor to the equity market’s uncharacteristic (recently, at least,) redness last week.

Here’s how the outbound flight evolved: Federal Reserve (Fed) Chairman Jerome Powell began hinting that his Fed might finally tolerate an honest-to-goodness rate cut as early as mid-July when he admitted that “inflation is probably on the road to 2%.” Traders took that as irrefutable evidence that rate cuts were finally on the horizon, allowing longer-term rates to begin dropping in anticipation. That became even more apparent at the end of July when Powell admitted that a September rate cut “might be on the table”, and continued through the end of August with Powell’s famous phrase “the time has come for policy to adjust,” which he uttered roughly three weeks before the Fed’s super-sized 0.50% cut on September 18th. Before that rate cut actually happened, 10-year yields were dropping fast and were already testing the 3.6% level, while the yield curve had righted itself after more than two years spent standing on its head.

But in the weeks since, we’ve had decent-enough corporate earnings, a blow-out jobs report (on October 4th) and a slightly uncomfortable inflation data (October 10th) that allowed traders to imagine yet another Powell Pivot – this time away from the optimism that allowed September’s half-point cut and toward a *gasp* possible pause through November (and maybe even December) – in recognition of the US economy’s persistent strength. That made the return flight far less comfortable than the trip out: By the end of last week, 10-year yields had round-tripped back above 4.2%.

That in turn caused US stocks to pause and encouraged sector returns to rotate in a way that should feel familiar by now: Growthier-names surged while boring old sectors like industrials, healthcare and financials lagged. Mid- and small-cap stocks paused too, as the economic script once again seemed to stutter on repeat: Higher-for-longer on rates means big cap tech remained the most popular place to park the aircraft.

Of course, the macro environment is more useful as a convenient way to talk about market dynamics than it is to actually explain them. What matters more is what the actual companies are saying and doing, which brings us to last week’s earning results. Perhaps unsurprisingly, they were mixed, too: Tesla’s surprise beat-and-raise caused that stock to surge and undoubtedly helped the high-growth narrative, while General Motor’s similar tone may have done the same for more traditional automakers. Motor-City optimism didn’t extend to the used car market, though, and second-hand giant Auto Nation missed estimates as a result of severe weather, IT issues and – far more tellingly – declining prices. Airlines, too, were a mixed bag as American’s beat-and-raise seemed to align better with United’s upbeat quarter while Southwest’s more measured report seemed to align better with Delta’s disappointing one. In transport and logistics, UPS executives said the “US consumer is in good shape for the holidays,” while rail operator Union Pacific seemed to struggle with lower volumes; in Tech, Texas Instruments held out hope for a rebound in traditional chip demand, while IBM bemoaned a slowdown in “discretionary spending” as it explained its tepid outlook.

So, adding it all up, if I were in the cockpit I’d probably leave the seatbelt sign on and the tray tables up – the atmosphere is just too unsettled to entirely rule out some clear-air turbulence even if the air feels mostly smooth for now. And that’s just as true whether the plan is half-full or fully booked. Fly safe, friends.

What to watch this week

Sometimes payrolls week overlaps with the Bureau of Economics’ income and outlays report on the calendar of planned economic releases. That makes for a very busy week for the macro-informed investor, because it gives you two top-shelf economic releases to contend with in the space of a just a single day or two. But sometimes, both of those reports appear just as quarterly earnings season reaches its most interesting point – which, well, fuhgeddaboutit...there’s almost no way to do justice to how much information will come tumbling down the pike this week.

Here’s a shot. First and foremost, Friday’s non-farm payrolls report and the data it includes on unemployment, hours worked, participation rates, etc., etc., etc., probably still deserves top billing in terms of what’s most important, especially if you include all the second-shelf releases that come before it like JOLTs on Tuesday, ADP payrolls on Wednesday and Challenger layoffs on Thursday. It’s hardly an exaggeration to say that what happens with the labor market is pretty much the whole ball game for the economy at this point – sort of like the Noah Brown of the macroeconomic stage (if you don’t know who Noah Brown is, google “Washington Commanders/Chicago Bears” to find out. Sorry, Bears fans...)

The next round of earnings reports probably edges out income and outlays for second place, but it’s a close call. This week’s highlights include some of the more important “Magnificents” including Google on Tuesday, Microsoft on Wednesday and both Apple and Amazon on Thursday. Tesla’s standout earnings release last week set the tone, watch closely this week to see if these other ‘mags’ sound similar. Of particular interest beyond just the headlines might be any comments surrounding capital spending – one under-appreciated line item within Tesla’s report last week, IMHO, was a pledge to boost spending and investment. That was a particular feature of many earnings releases in and around the AI ecosystem last quarter – if it repeats (or retreats) this quarter, it could be an important sign of how entrenched AI enthusiasm really is. There are also a group of chipmakers (including ON Semiconductors on Monday, AMD on Tuesday and Intel on Thursday) for your tech-reading pleasure.

Beyond tech, pay close attention to Berkshire Hathaway’s release on Friday – not because Warren Buffet’s portfolio of insurers, textile manufacturers, ice cream stores and truck stops is particularly sexy, but because his second-quarter release captured a lot of attention for the overgrown size of the company’s cash balances. It would likely go a long way toward building comfort around the level of equity market valuations if Warren Buffet were seen to be putting some of that huge hoard of dough to work.

On the consumer side, look for McDonald’s (Tuesday) and Starbucks (Wednesday) as a way to triangulate spending among the minivan set, verified and cross-checked by reads from Visa (also Tuesday) and Mastercard (Thursday) as well as Big Three automaker Ford (Monday). And because housing markets live somewhere near the border of what it means to be consumer discretionary, look for DH Horton’s release on Tuesday to ether confirm or deny Pulte’s release last week, where sales volumes were fine but profits were pressured by continued discounting and incentives (and, FWIW, we’ll get macro-related data on housing this week too: Two updated reads on home prices are due out Tuesday, while pending home sales will be released on Wednesday.) Finally, watch tractor company Caterpillar’s results on Tuesday for a read into global construction trends and a full schedule of oil majors including BP, Conoco-Philips, Exxon-Mobil and Chevron-Texaco scattered throughout the week for a view into commodity markets that a simple read of oil charts can’t provide (watch, too, for any comments related to geopolitical risk – something that keeps risk managers for global energy firms awake at night more than any other sector.)

I could go on and tell you to watch Thursday’s income and outlays report for any signs that September’s curiously strong retail sales report was for real, or Tuesday’s first guess at third-quarter Gross Domestic Product from the Department of Commerce was unusually skewed toward consumer profligacy. I could also hint at the idea that Monday’s Dallas Fed or Friday’s manufacturing Purchasing Managers’ Indices will likely show that manufacturing activity is still contracting, but you get the point: If macroeconomic analysis is your hobby, you’ve got your hands full this week.