SLO signal
An important but overlooked indicator for the US economy is the Federal Reserve Senior Loan Officer survey (SLO). The survey reflects bank lending conditions in the US economy. It measures the degree to which banks are changing covenants and borrowing terms. The recent SLO survey points to an increased level of tightening. Tighter lending conditions will prove a challenge for the US economy. When the SLO increases, the rate of economic growth slows.
The Senior Loan Officer survey points to tightening lending conditions which normally translates to weaker economic growth
Source: Bloomberg, Artorius
Hope springs eternal
Inflationary pressures appear to have peaked. This remains the case, but the move back to low inflation may take longer than previously anticipated in the US as the housing component is likely to remain higher for longer. Markets have reacted to this by increasingly thinking that the Federal Reserve will hold interest rates higher for longer.
Given the backdrop of challenging interest rates and declines in earnings expectations the outlook remains a challenge for optimistic risk takers.
Whilst there are a mix of signals from competing asset classes, we are looking into 2023 for clues to become more positive.
A key indicator will be a trough in economic momentum in the US. With interest rates rising so quickly in the past year, the housing market has felt the effect and is already slowing. If this troughs in 2023, for us that will be a key indicator for a more positive economic climate.
All expressions of opinion reflect the judgment of Artorius at 17th February 2023 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions. Artorius Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Artorius is a trading name of Artorius Wealth Management Limited.