Let’s talk macro, the Fed, recession, and setting expectations.

Fed Chair Jerome Powell had a clear message for Congress in his testimony to the Joint Economic Committee last week: the Fed won’t be able to combat the next downturn alone. Citing the low interest rate environment, Powell raised concerns over the limited effectiveness of monetary policy without complementary fiscal stimulus and urged policymakers to address the “unsustainable path” of federal deficits to support the economy during the next downturn.

Negative worries aside, I’m actually bullish the S&P 500 will make new highs by March.

Here’s a few reasons why:

1. Overblown fears driving consensus view of recession leads to people rooting for it

The biggest negatives within the macro picture are already fully-priced into the market, given how wide the narrative of yield curve inversion and recession worries have spread (Good Morning America proxy).

Looking at Google Search volume trends, searches for “Inverted Yield Curve” in August were almost 4x the former peak total set in December 2005.

More interesting, the total volume of Google searches for “Recession” this August actually matched the level set in January 2008, even though the later came 25 months after the spike in “Inverted Yield Curve” searches.

We can look at these patterns to indicate that August had hit full recession mania, and suggests that if the inverted curve is a false positive, or even still on its typical 12-25 month lag-time until recession, that the market has over-discounted the risks today.

That’s unsettling.

Furthermore, I believe too many people stand to benefit from recession fears, and have turned to actually rooting for it. Mind you, this includes us as the consensus view within the crypto community is that weaker economic data, large debt loads, and Fed accommodating policy is favorable for Bitcoin.

If you stand back and look at it, a lot of people want a recession not because they think we’re due, but because they want to take advantage of it.

Yikes.

2. Rate cuts are (unfortunately) bullish

Look, the timing of rate cuts, in relation to what part of the cycle the economy is in, determines the likely outcome for market performance.

Jerome Powell, chairman of the Federal Reserve, has stated America is on an unsustainable path because debt is growing faster than the economy by a significant margin. He said:

“The debt is growing faster than the economy. It’s as simple as that, in nominal terms. That is by definition unsustainable. Ultimately, you’ll have to get it to where the debt is growing not faster than the economy.

It’s growing faster in the United States by a pretty significant margin. So even with lower rates and even with decent growth, there’s still going to be a need to reduce these deficits.

That’s a need over time. We’re not in the business of advising [congress] of when to do that or how to do it, but it is inevitable that overtime we will have to do it.

Frankly if we don’t do it, what happens is our children will wind up spending their tax dollars more on interest than the things they really need, like education, security, health.”