According to the BLS – we saw the strongest employment growth in 12 months alongside the fastest wage growth in 22 months (0.6% MoM). However, we also saw the lowest amount of weekly hours worked since 2010. Given the better than expect jobs gains and acceleration in wages (which remains well above the Fed’s objective) – it seems less likely the Fed can justify rate cuts in March. Probabilities for a cut in 2 months stand at 38%. This was above 70% just a month ago.
Lessons from 1999/2000
Momentum is a powerful force. Bet against it at your peril. John Maynard Keynes was believed to have said “…the market can remain irrational longer than you can remain solvent”. Sound advice. Those expecting (or worse betting) the market would reverse to start 2024 are probably questioning their decision. It’s been one record close after another. Higher highs beget higher highs.
Equal Weight ETF to see Mean Reversion
The euphoria in markets continued last week – with the S&P 500 notching a new record high – taking out the 4817 high from Jan 2022. Thanks largely to the Fed signaling peak rates in combination with inflation trending lower – markets now believe a ‘soft landing’ is possible. That is, inflation ultimately trends back to the Fed’s objective (2.0%) without any negative impact to the broader economy (e.g. widespread job losses). We will see how that turns out – as the Fed is attempting to thread a narrow needle. From mine, a soft landing remains a lower probability outcome. However, I believe there is still opportunity… and it’s not with large cap tech stock.
Bifurcated Markets Usually End the Same Way
If you’re long the market – it was another rough week. My portfolio was no exception. My largest position (Google) was smoked – losing around 10%. The Index is now only up 7.24% for the year…. a long way from almost 20% higher in June. The next hurdle for the market comes next week – when we get payrolls. A soft print might give the market hope the Fed is almost done. However, if it comes in hot, the Fed may have no other choice but to hike again in December… given the uncomfortably high Core PCE last week.
For a full list of posts from 2017…