Evercore's Roger Altman: Seeing a surprising amount of resilience in both the economy and markets

Key Concepts:

• Market Resilience: The surprising ability of the economy and markets to withstand negative events.
• Tariffs: Taxes imposed on imported goods.
• GDP Forecasts: Predictions of a country's Gross Domestic Product growth.
• The Magnificent Seven: The seven top-performing tech stocks that have significantly influenced market performance.
• AI Revolution: The transformative impact of Artificial Intelligence on the economy and society.
• Wealth Effect: The impact of asset values (like stocks) on consumer spending.
• M&A Environment: The landscape of Mergers and Acquisitions activity.

I. Current Market Resilience and Economic Factors

• Surprising Resilience: Roger Altman notes the unexpected resilience in both the economy and markets, which is confounding many experts.
• Hypothetical Scenario: Altman presents a hypothetical scenario where a prophet foretells current global issues (wars, tariffs, deportations) four years ago. The expected negative impact hasn't fully materialized.
• Early Signs of Weakness: Despite the resilience, Altman points out emerging signs of economic weakness in retail sales, industrial production, continuing claims, homebuilder sentiment, and new home starts.
• Yields: Altman believes that the yields are down because of the weakness.
• GDP Forecasts: US GDP forecasts have been revised down to around 1% by institutions like Goldman Sachs and the World Bank.
• Anticipatory Behavior: Consumers and businesses engaged in inventory stockpiling and advanced purchasing in anticipation of tariffs, delaying their impact.

II. Tariffs and Consumer/Business Hesitation

• Tariffs as a Factor: Tariffs are considered one aspect of a broader picture influencing economic sentiment.
• Consumer Hesitation: Altman suggests that negative news (wars, tariffs, deportations) will likely cause consumers to be hesitant about spending.
• Business Hesitation: Businesses may delay capital spending, expansion plans, and hiring due to the uncertain environment.

III. Positive Economic Indicators and Counterarguments

• Solid Employment: Employment remains solid, providing consumers with spending power.
• Real Wage Growth: Real wages for hourly workers have increased by 2% in the first five months, marking the strongest growth in 60 years.
• Low Inflation: Inflation remains low, even with tariffs in place.
• Tailwinds: Deregulation, tax certainty, and previously lower oil prices were tailwinds that could potentially offset the negative impacts of tariffs.

IV. Geopolitical Events and Potential Outcomes

• Confluence of Events: The discussion highlights a confluence of significant destabilizing events, including wars and geopolitical tensions.
• Israel and Iran: There's a mention of potential positive outcomes from the situation between Israel and Iran, possibly leading to stability in the Middle East.
• Historical Context: The conflict with Iran is framed as a long-standing issue since 1979.

V. M&A Environment and Business Activity

• M&A Activity: The M&A environment is described as "okay but not booming."
• Pent-Up Demand: There's significant pent-up interest and demand in the M&A market.
• Recent Announcements: The last few weeks have seen an increase in M&A announcements, with dollar volume up year-over-year globally.

VI. Wealth Effect and Market Performance

• Wealth Effect: The wealth effect from the stock market is acknowledged, as market gains benefit consumers who hold investments.
• Market Recovery: The market has recovered to previous levels, puzzling some observers.
• Magnificent Seven: The performance of the "Magnificent Seven" tech stocks is noted as a significant driver of overall market performance.
• AI Revolution: The potential for an AI revolution is mentioned as a major factor influencing market optimism.

VII. Conclusion

• Uncertainty: Despite current market resilience, there's a strong sense of uncertainty about the future due to a confluence of destabilizing events.
• Potential for Weakness: Altman believes that the resilience is unlikely to last and expects to see more evidence of economic weakness.
• Contradictory Signals: The economy is presenting contradictory signals, with positive indicators like employment and wage growth alongside negative factors like tariffs and geopolitical tensions.
• Wait-and-See Approach: The overall tone suggests a cautious, wait-and-see approach to the market, acknowledging both potential risks and opportunities.