“In life, you learn lessons. And sometimes you learn them the hard way. Sometimes you learn them too late.”
-Taylor Swift
I know nothing about football. Despite this lack of knowledge, I was promoted to the Hedgeye Fantasy Football "A" League. I wish I could say it was because I dominated the "B" League. But I didn't.
A spot opened up and seniority rules the day. The boys called me up to the big leagues, though it is probably mostly because my $400 entry fee will be easy takings. Although, I would like to believe it is because I'm a good locker room guy and bring some energy to the league.
As you might imagine, this note isn't really about fantasy football. It's about learning. When the lads called me up to the big time, I decided I needed to learn about football and, more specifically, playing in fantasy football leagues. I studied, I took notes, I did mock drafts, and I came to the draft prepared.
Despite the work I came in and the yellow sticky notes of strategy I showed up with at the draft, Yahoo awarded my hours of study and learning with a final grade of “D” on my picks. I would like to believe they are undervaluing my first pick (11th overall) Bijan Robinson due to his inexperience, but practically speaking, it may have been my strategy of taking “deep sleepers” too early.
The bigger point here is about learning and trying new things throughout your life. The actual benefits of adopting a life of learning are plentiful. Studies show that life-long learners are healthier, have less stress, are wealthier, and offset cognitive decline. In fact, a recent study in Neurology notes that “while cognitive activity can’t change the biology of Alzheimer’s, learning activities can help delay symptoms, preserving people’s quality of life.”
One of the beauties of being a stock market operator is that it is very conducive to the learning lifestyle. We are constantly learning about new companies, new products, analyzing economic data, creating models, utilizing statistics, and so on. So, even if you are having a bad run in the market, you can take some solace in the fact that the learning effort you put into your work is benefitting you.
Back to the Global Macro Grind . . .
So, what have we learned about the U.S. labor market this week ahead of Non-Farm Payrolls? Well, let's start by looking at the data that has been released:
- JOLTS Job Openings – The July data fell to 8.8MM from 9.2MM (revised lower from 9.6MM) in June. This was the lowest level in some 2.5 years.
- Challenger Job Cuts – This was an August datapoint and came in +75.2K, which was up more than +200% from the prior month and year-over-year.
- ADP Employment Report – This data series showed that private employers added some +177K jobs in August, which was below consensus estimates and much lower from July’s additions of +371K (a number that was revised higher).
- Weekly Jobless Claims – Jobless claims for the week ending August 26th came in at +228K, which was lower than the prior week by about +4K.
In aggregate, we had 3 of the 4 major labor data series slowing ahead of this morning’s Non-Farm Payrolls print. It sounds negative as it relates to the state of the labor market, but in reality all of these measures are running at better levels than pre-pandemic and imply a tight labor market by almost any historical standard. Interestingly, one reason that some prognosticators are putting up as a reason that NFP could be better than expected is an increase in workers from Taylor Swift concerts ... you go T Swift!
On the inflation front, we received PCE price data yesterday, which confirmed what we’ve been talking about for the last month and Chairman Powell echoed last week at Jackson Hole ... namely that inflation is accelerating. July Headline accelerated to +3.3% Y/Y from +3.0% in June and Core PCE accelerated to +4.2% from +4.1%.
Now to be fair, inflation has been coming down steadily over the course of the year and yesterday’s acceleration was really only marginal. Nonetheless, the data supports the idea of higher for longer on inflation and, as a result, likely interest rates.
The other overarching takeaway from the PCE report is that US consumers continue to get squeezed. Within the report, Personal Income slowed on a M/M basis alongside Disposable Income slowing. Despite this, Personal Expenditures actually accelerated over the prior month by +0.8%. That said, it is obviously questionable how long personal spending growth is sustainable with more consumers than ever rolling their credit card balances at the end of the month and credit card balances at all-time highs.
One area where we are clearly seeing slowing is spending on luxury goods. We highlight this in the Chart of the Day below. It shows July Luxury Goods Spending down -8.3% Y/Y in July and now on the 10th straight of negative Y/Y spending. Likely not the best time to sell that yacht you bought during the pandemic!
At the moment, our Top Macro ETFs By Rank stand as follows:
FDRXX, TBIL, UUP, INDY, PFIX, SQQQ, INDA, AAAU, XLV, EWJ, GLD, XLE, URA, EWJV, PSCE, INFL, PINK, NLR, URNM, USO, XOP, UGA, SCJ, JPXN
Obviously, this is conservative and reflects a little of both #Quad3 and #Quad4. Our views won’t stop some investors from leaning into their FOMO and chasing the next shiny object in the markets. But as Taylor Swift sings:
“You play stupid games, you win stupid prizes.”
Indeed.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.12-4.47% (bullish)
UST 10yr Yield 4.05-4.39% (bullish)
UST 2yr Yield 4.81-5.09% (bullish)
High Yield (HYG) 73.67-75.40 (bearish)
SPX 4 (bearish)
NASDAQ 13,259-14,151 (bullish)
RUT 1 (bearish)
Tech (XLK) 164-177 (bullish)
Financials (XLF) 33.40-34.73 (bearish)
Nikkei 31,402-32,808 (bullish)
BSE Sensex (India) 64,755-65,510 (bullish)
VIX 13.19-18.29 (bullish)
USD 102.91-104.30 (bullish)
EUR/USD 1.076-1.094 (bearish)
Oil (WTI) 79.18-85.25 (bullish)
Oil (Brent) 83.18-88.10 (bullish)
Gold (GLD) 175-182 (bullish)
Copper 3.68-3.90 (neutral)
Silver 22.95-25.51 (bullish)
GOOGL 129-138 (bullish)
NFLX 408-444 (bullish)
TSLA 215-265 (bearish)
NVDA 445-503 (bullish)
Bitcoin 25,031-27,597 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
