Five for Friday

Context, Economy, Workers, IPO Boom, and On This Day

1. Context

Since WWII ended, the S&P 500 has spent 90% of its time in a drawdown AND returned 535,000%, turning $1,000 into $5.4 million. Over that same period, there have been 45 stock market selloffs of 10% or greater (good for one every 1.8 years) and 13 selloffs of 20% or greater (one every 6.1 years). A 5% intra-year pullback is even more common, to the point where it’s simpler to count the few years in which we didn’t have one (2017, 1995, 1993, 1964, 1961). If you want to be a bit more granular, there is plenty of great research on how the speed of the initial selloff matters for forward returns – the quicker the market moves from peak to -5% down, the more likely there is to be further downside (the current selloff took a snail-like 50 days from all-time high to -5% down). Regardless, whatever happens next with Iran (or with private credit, or AI), this is the context in which any weakness must be considered.  

2. Economy

The market’s resilience in the face of war in Iran has come as a surprise to many, and while part of the story is surely the hope that this administration’s penchant for dealmaking will win out, it must be concluded that another part is the underlying strength of the US economy. The question now is how much of that momentum has been eroded by higher energy prices and interest rates. Most economic data we might rely on is not high frequency and high quality (i.e., it’s monthly/quarterly, reported with a lag, oft-revised), so in times like these, I find the Dallas’ Fed’s Weekly Economic Index – a fusion of 10 high‑frequency data series across consumer, labor, and manufacturing – quite useful. Here, we see the series’ 13-week moving average (which approximates annual real GDP growth) at its highest since 2022 and above its 2010-2019 average. Imperfect, yes, (and a longer conflict would certainly change things), but a decent sign that the war has not yet resulted in deep economic deterioration at home.  

3. Workers

On the labor market, March was the best month for job growth since 2024, as the U.S. added 178,000 nonfarm payrolls to the economy after adding just 149,000 over the previous 12 months. But payroll growth, while a useful metric on its own, can be much improved with more context. Enter the breakeven rate of employment growth – the number of new jobs needed each month to keep the unemployment rate constant. If the labor force is growing slowly (or shrinking), the economy needs fewer new jobs than it might otherwise to keep the unemployment rate steady (here’s the math). On that front, using high frequency court data, the Dallas Fed estimates net unauthorized immigration was substantially lower over the last year than previously estimated. As a result, the breakeven rate, which peaked at 250,000 jobs/month in 2023, was potentially as low as 0 jobs/month by late 2025. Near-term, this paints the weaker jobs numbers of late in a better light. Longer-term, however, weak labor force growth presents a significant hurdle to the overall economy. 

4. IPO Boom

With news that a handful of mega IPOs are inching toward launch, we took a deeper look at IPOs this week.    

5. On This Day

In 1790, George Washington signed the Patent Act into law. The U.S. system differentiated itself in several key ways, none more important than cost (a fraction of Euopean prices), accessibility, and standardization. In many ways, this system was the springboard for U.S. economic growth and global outperformance. Even early skeptic Thomas Jefferson later remarked that the act had "given a spring to invention" beyond his conception.  

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