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The numbers: The leading indicators for the U.S. economy fell again in December to mark the 21st decline in a row, but a widely predicted recession still appears no closer than when the long losing streak first began.
The leading index slid 0.1% last month, but it was smaller than the 0.3% drop forecast by economists polled by the Wall Street Journal.
The losing streak is the third longest on record
The two other times the index was negative for so long, a recession took place. Yet the economy has not followed the usual patterns since the 2020 pandemic.
Key details: Six of the 10 indicators in the survey were positive in December, a big improvement compared to prior months.
The leading index is a gauge designed to show whether the economy is getting better or worse. The report is published by the nonprofit Conference Board.
Big picture: The economy has continued to expand through a period of high inflation and rising interest rates orchestrated by the Federal Reserve to get prices back under control.
The U.S. grew at a rapid 4.9% annual pace in the third quarter and gross domestic product is estimated to have expanded by almost 2% in the recently ended fourth quarter.
Economists are split on whether a recession is likely, but if the Federal Reserve cuts interest rates this year it could help the U.S. to avert a downturn. Central bank officials have signaled they are probably done raising rates.
Looking ahead: The Conference Board is sticking to its forecast.
“Overall, we expect GDP growth to turn negative in [the second and third quarters] of 2024 but begin to recover late in the year,” said Justyna Zabinska-La Monica, senior manager of business cycle indicators.
Market reaction: The Dow Jones Industrial Average
DJIA
and S&P 500
SPX
rose in Monday trading.
President Joe Biden and Ukrainian President Volodymyr Zelensky on Tuesday pushed a divided Congress to make a deal on more aid for the Eastern European nation, but analysts and some lawmakers forecast that weeks more of talks look likely.
Biden and his fellow Democrats, along with Zelensky, want congressional approval for additional Ukraine assistance before U.S. lawmakers take a break for the holidays, but Republicans won’t sign off until they get support for their demands related to U.S. border security, such as stricter rules for asylum.
Republicans “cannot go back to our constituents, with close to 10 million illegal entries in the last three years, and say that we got nothing out of border negotiations,” said GOP Sen. J.D. Vance of Ohio on Tuesday during the WSJ CEO Council Summit, an event in Washington, D.C. Vance added that he sees potential for a deal “if the president is actually willing to make one.”
Biden, for his part, said he’s “ready and offering compromise already,” but the president criticized what he described as an “extreme Republican partisan agenda on the border.”
“Ukraine will emerge from this war, proud, free and firmly rooted in the West. Unless we walk away” the president said during a joint news conference with Zelensky following their meeting in the Oval Office. Their events together come as the Republican-run House and Democratic-controlled Senate are slated to go on recess after this week.
Senate Minority Leader Mitch McConnell told reporters on Tuesday that it’s “practically impossible,” even if Congress reaches an agreement, to “craft it, get it through the Senate, get it through the House before Christmas,” though that “doesn’t mean it’s not important.” The Kentucky Republican noted that House Speaker Mike Johnson, a Louisiana Republican, has “said to a number of people they’re leaving at the end of the week.”
Some analysts have been eyeing January as the time when a deal could be made.
“We continue to believe there is a deal to be had here, but our sense is that the debate will slip into the new year as there is no clear legislative forcing mechanism and the path of least resistance is leaving town for the holidays,” said Isaac Boltansky, a BTIG analyst, in a note.
Meanwhile, another analyst, Pangaea Policy founder Terry Haines, has said in a note that an aid-and-border package can be finished by year’s end, but he’s cut his chances for it to 60%, down from 70% last week. He also said there are “three more weeks, until the end of the calendar year, to do this, not the one week the Washington conventional wisdom bandies about.”
Biden is seeking $61 billion for Ukraine as the country continues to resist Russia’s invasion, and the request is part of a $110 billion package that also includes money for Israel.
“It’s very important that by the end of this year, we can send a very strong signal of our unity to the aggressor,” Zelensky said during the joint news conference.
Israeli security agencies note that the Tron network has become the preferred platform for crypto transfers by militant groups linked to Palestine, Hamas, etc.
In Israel’s ongoing battle against the financing of Iran-backed militant groups such as Hamas and Hezbollah, a previously less scrutinized crypto network Tron has emerged as a significant player.
Surpassing Bitcoin in terms of transaction speed and cost-effectiveness, the Tron network has become the preferred platform for crypto transfers associated with organizations designated as terror groups by Israel, the United States, and other nations.
Interviews with financial crime experts and blockchain investigations specialists, coupled with an analysis of Israeli security services’ crypto seizures since 2021, highlight a noticeable shift toward targeting Tron wallets. On the other hand, Bitcoin wallet seizures have declined.
Mriganka Pattnaik, CEO of the New York-based blockchain analysis firm Merkle Science, notes that this trend is influenced by Tron’s faster transaction times, lower fees, and overall stability.
Merkle Science reports that it serves as a provider for law enforcement agencies in the United States, Britain, and Singapore. During the period from July 2021 to October 2023, Israel’s National Bureau for Counter-Terror Financing (NBCTF), the entity responsible for asset seizures, identified and froze 143 Tron wallets. These wallets were most likely associated with a “designated terrorist organization” or utilized in connection with a “severe terror crime”, according to the analysis conducted by Reuters.
Tron Wallets Linked to Hamas
The attacks on October 7 by Hamas resulted in the death of approximately 1,200 people in Israel. Subsequently, Israel’s bombardment and ground invasion of Gaza led to the death of around 14,000 people. In response, Israel has intensified its scrutiny of Hamas’ financing.
Hayward Wong, a spokesperson for Tron, a British Virgin Islands-registered entity, emphasized these of all technologies, including Tron, for questionable activities, drawing a parallel with the use of US dollars for money laundering. Wong asserted that Tron does not control the actions of those using its technology. Besides, he also distanced any kind of association with the groups identified by Israel.
Of Israel’s Tron seizures, 87 occurred this year, including 39 wallets linked to Lebanon’s Hezbollah and 26 wallets associated with Palestinian Islamic Jihad. The seizures also encompassed 56 Tron wallets connected to Hamas, with 46 linked to a Gaza-based money exchange company named Dubai Co. For Exchange in March last year.
Following the Hamas assault, Israel made its most significant known seizure of crypto accounts. They froze approximately 600 accounts associated with Dubai Co., without specifying the crypto networks or coins used.
Individuals affected by the seizure, using Tron, denied any ties to Hamas or Islamic Jihad, stating that they engaged in crypto trading for business or personal finances. One individual mentioned the possibility of a one-time money transfer to someone associated with Hamas.
The armed wing of Hamas, which had previously raised crypto funds, announced in April that it would cease Bitcoin fundraising, without mentioning Tron in the statement.
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The classic 60/40 portfolio, which consists of 60% bonds and 40% stocks, hasn’t performed well in the past few months, with the two assets mostly posting a positive correlation and investors worrying the Federal Reserve may keep interest rates higher for longer.
The S&P 500
SPX
has lost 3% for the past three months, while the 10-year Treasury
BX:TMUBMUSD10Y
yield added about 53.9 basis points during the same period, according to FactSet data. Bond yields and prices move in opposite directions.
For stocks and bonds to post a negative correlation again, there has to be a change in the inflation regime, Alexandra Wilson-Elizondo, the head of multi-asset funds and model portfolio management at Goldman Sachs
GS,
said in a roundtable discussion held by the bank.
“We do agree that you’re going to continue to see that disinflationary trend, which could take a little bit longer than expected, but ultimately, we should get down to that 2% [interest-rate] target with the current level of rates that we’re seeing,” said Wilson-Elizondo.
Still, the Treasury markets have been mostly driven by a large amount of leverage, which primarily comes from the U.S. federal deficit, Wilson-Elizondo noted. “Every time you see large funding announcements or expectations of issuance, it makes it very hard for the rate market to rally even with the disinflationary trend,” she said.
Investors have to watch a large election cycle across different economies to look for signs of changes, according to Wilson-Elizondo. “Ultimately, we do expect in particular the front end of the curve to perform quite well in a selloff,” she added.
Investors should also look at other assets, such as gold and commodities, for diversification and risk-management purposes, the analyst noted.
U.S. stocks ended Tuesday higher, with the Dow Jones Industrial Average
DJIA
up 0.2%. The S&P 500 rose 0.3% and the Nasdaq Composite
COMP
gained 0.9%, according to FactSet data.
What happened
Aramark (ARMK 3.12%) has spun off its uniform and workplace supply unit into a new company. The deal is done, but some stock-tracking services have been slow to adjust, which is causing Aramark shares to appear to be down nearly 30% on Monday morning.
Long-term investors need not worry about the drop.
So what
Aramark has established itself as a key vendor to universities, sports teams, and large companies, providing uniforms, cleaning services, venue management, and food services to a wide range of venues. But the company is in the process of streamlining, and last year, it announced plans to hive off its uniform business into a separate publicly traded company.
That spinoff became official over the weekend, and the new company, Vestis (NYSE: VSTS), began trading on Monday morning. But the split is causing some confusion among stockholders.
Under the terms of the split, Aramark shareholders received one share of Vestis for every two shares of Aramark they held.
On Friday, Aramark closed at $34.69. On Monday morning, it is trading in the neighborhood of $25. But Aramark holders also now own a half share of Vestis for each share of Aramark they owned on Friday. With Vestis trading at about $18, that half share is worth $9. Add that to the share price of the new, slimmed-down Aramark, and shareholders’ stakes continue to be worth about $34 per Friday share.
Indeed, on an adjusted basis, Aramark is down about 1%.
Now what
Investors should expect market data providers to adjust in the days to come, and that their comparisons will be corrected as they do. The bigger question for long-term focused investors is whether Aramark and Vestis are worth owning.
Vestis is now North America’s second-largest provider of uniform services, with more than 300,000 customer locations and approximately 20,000 employees. Aramark will continue to focus on facilities management and food services, making sure the big game runs smoothly and the customers have ample food choices while they are there.
Over the past decade, Aramark delivered a total return of 71% prior to the spinoff, underperforming the S&P 500‘s 141% return. The hope is that the two streamlined companies will be better able to invest in growth, and the facilities business in particular is viewed as an attractive opportunity.
There’s potential here, but investors need to understand that despite what their screens might say, Aramark stock is not on sale on Monday. It might be best to let the dust settle and see how these two companies perform before jumping in.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.