8-11-26 What Really Drives Markets?

The employment report showed a 23,000-job decline versus expectations for an 85,000 increase, although roughly 50,000 post-World Cup job losses made the result partly anomalous and prior months were revised lower. Declining hourly wage growth adds to the evidence of slowing economic activity and could weigh on consumer spending and S&P earnings growth.

The speakers argue that returning to a gold standard could impose severe liquidity restrictions and deflationary pressure, citing a 42% decline in British wholesale prices from 1873 to 1896 and banking panics during 1893 to 1907. Because the dollar is the global reserve currency, restricting dollar creation could also reduce the ability to provide liquidity during international crises.

The speakers contend that a U.S. gold-standard return would only be workable if every country adopted it simultaneously; otherwise, countries could lose monetary control and restrict money flows. They also argue that a gold peg might ultimately be abandoned under pressure, producing panics, deflation, reduced exports, and drained liquidity rather than fiscal discipline or stable prices.

The case against a gold standard is reinforced by the speakers' argument that government debt supports household balance sheets and that U.S. growth would otherwise have been negative for a long time. On that framing, removing debt-supported liquidity could create a deflationary depression potentially worse than the Great Depression.

Corporate earnings remain strong, with approximately 16% profit growth and a record earnings-beat rate, but analysts expect growth to slow as the cycle matures. The speakers therefore distinguish between fading earnings growth that may leave markets resilient and an earnings decline tied to recession or financial crisis, which poses a more consequential equity risk.