September 1, 2023

Soft Enough?

 Markets & The Economy

This week the markets began with a bang, cleaning up much of August losses. After last week’s comments by Fed Chairman Powell at the Jackson Hole annual meeting, the markets appear to be responding to a speech, that In my opinion, seemed a bit hawkish, as suggested below.

 “Although inflation has moved down from its peak—a welcome development—it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective”

Not exactly a reason to buy. But the recent rally in the broad indexes have taken the markets away from being oversold, and for now we’re invested and I’m content to be neutral. That said, with so much technology, AI and our friendly Algochums, and some pundit narratives, the impact has been void of much economic data. And what data has come out for July, Existing Home Sales fell 2.2%, Durable Goods fell 5.2%, New Home Sales increased 4.4% and Real GDP Growth for the Second Quarter was revised lower to a 2.1% annual rate, presents a softer mix. And today the monthly Unemployment data was released and Total Nonfarm Payroll increased by 187,000 in August, and the Unemployment Rate increased to 3.8 percent. At first glance the payroll rise appears strong, however, previous months were revised down and added to today’s data suggesting a weaker number than presented. And any rise in the unemployment rate will be favorably received by the markets. Also worth noting, Average Hourly Earnings declined, consistent with yesterday’s release of data showing a month over month increase in Continuing Jobless Claims. All of this is good news, suggesting economic growth while softening but, in my opinion, still in a transition that needs more evidence. For now, the markets want to rally on slow growth data and decline on strong growth data. Hence, I’m not surprised by this week’s rally, and we did take advantage of the recent decline.


The future of employment is a focus of both the Fed and our portfolios. AI and robotics are being used by large hybrid (Land and Internet) retailers as warehouses are being automated with robotic movers and conveyor belt personnel. This will likely be the first noticeable impact of many corporate robotic transformations to come.

 Autonomous vehicles will be a real addition to the roads, not necessarily for consumer drivers, but more certainly for commercial drivers. The current technology is focused on Trucks, Trains and Ships, and all will have a significant impact on employment, especially Union workers.

 Inflation was an outgrowth of huge pandemic spending limits. Why, is because the United States has the largest (60% of GDP as of 01/01/23) and busiest consumers in the world, retail, leisure, hospitality sees the most activity and the largest users of natural resources. Is it coming down sooner rather than later? If we’re referring to the aggregate data (CPI, PPI) I think so, but slowly. If we’re referring to our rent, housing prices, travel, leisure, grocery’s…I don’t think so.

 Resumption of student debt payments finds a dismissive narrative as the most likely victims are the wealthier families. I disagree. The broad impact across all colleges of growing a diverse body of students serves to cover that many of those students have qualified and taken student debt. This has been especially  notable in the 19% rise in graduate school masters students and 18% doctoral students since 2010. That’s a lot of debt to assign only to the “wealthy”. Worth watching, as any slowdown in consumer spending, along with rising unemployment, the economy will soften further, keep an eye on the Fed narrative. The markets can remain strong, but a genuine second wave bull markets need a passive Fed. In the meantime, the continued cloud of uncertainty suggests to me that the markets will remain volatile, and when overbought I’ll trim and when oversold, I’ll buy.

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