The Fed is Late: Scary Thoughts + Scary Stocks?

It’s Friday the 13^th as we release this video and Investors let’s not mince words.  It’s a bit scary out there. The Fed is late.  Late to start cutting interest rates.  They were late to raise and now they are late to cut.  Many developed nations Central Banks have already cut multiple times with the leading trend setter on the way up and down, the Central bank of our neighbors to the north, Canada, having already cut rates a few times by a total of 75bps.  The 64 trillion-dollar question is are they too late? Like they were in late 2000 and late 2007? That I do not know.

Inflation has been dropping since summer of 2022 when it reached a peak over +9% per year. While some prices are still advancing, like auto and home insurance, many others like used car prices, meat at H-E-B and gas you put in your Internal combustion engines are deflating year over year. Unfortunately for investors, the Fed seems stuck in their slow-moving academic economist past and has refused to see the rapidly slow in real economic growth and rapidly loosening of the job market in the summer.

With the help of jobs data research from Zero Hedge, we first covered the massive overstatement of the BLS jobs data almost 8 months ago.  We followed that up pre-“Labor” Day holiday with this video entitled, “You’re Fired, You’re Fired” https://www.youtube.com/watch?v=WobrMi5xENY

With the holiday weekend we skipped a week, but during this stretch 3 more significant jobs data releases were made that emphatically backs our case that the Fed is late. First the JOLT’s Job openings report came out on September 4^th with the number of job openings in July tanking to 7.673mm which is the lowest openings in 3.5 years.  That’s down almost 500k job openings in one month and before what is likely to be a worse number in August. Here’s Zero Hedges graphic on the data.

The worst part of the news here is the collapse in construction job openings to a 4 year low of a little under 250k. This is bad news as 1- construction hiring is usually a leading indicator of economic sentiment and 2- there is a significant multiplier effect in the US economy from homebuilding and the construction industry.

Then on Thursday Sept 5^th, ADP released their private payroll number showing only 99k jobs being created. This is the smallest gain also since 2021 coming out of Covid lock-downs. This data series, which has been more accurate to the ultimate revised BLS data, was suppose to come in at a decelerating 140k jobs. Somewhat hilariously, many media outlets told their viewers to ignore the weakness saying and I quote, “only a few sectors reported actual job losses”.  “Only” professional and business services declined 16,000, manufacturing lost 8,000, and information services declined by 4,000. Never mind those are near the highest paying jobs, they were “replaced” by gains in government jobs, healthcare and education/back to school hiring.

Finally on Friday Sept 6^th, our taxpayer funded BLS group released their August payroll data coming in at 142k jobs under the forecast of 162k. Meanwhile, previously reported job gains for July were revised down from 114,000 to 89,000 while gains for June were lowered from 179,000 to 118,000.  The overstatement and negative revision trend for the job market the last 18+ months continues.

We’ve covered my final point on the job markets multiple times over the last year.  The BLS data double and triple counts workers and jobs if you are working part-time and or second and third jobs.  Updating those stats, Per E.J. Antoni (https://dailycaller.com/2024/09/06/impoverishment-part-time-jobs-soar-us-economy-hemorrhages-full-time-gigs/) in August the US lost 438k Full-time jobs with the entire gain coming from part-time jobs. The number of part-time jobs rose +527,000 in August, while the number of people forced to settle for part-time work rose from 4.2 million to 4.8 million year-over-year. Year-over-year, the U.S. lost 1.02 million full-time jobs while adding 1.06 million part-time jobs, BLS data shows.

Far from “killing it” as many in DC want us to believe into the election, the economy is weakening and weakening fast.

What does this mean for you and your money?  Well, obviously it now means that the Federal Reserve will start cutting rates next week.  The financial press and economists are playing the mental game of 25 or 50bps, or what path are the dot plots going to they take going forward.  They can try to dazzle you with talk of Fed Funds Futures markets, which we have discussed numerous times previously as not predictive at all of interest rates except for the 5-7 days before a Fed meeting which we will be in as you are viewing this.

If Powell stands by his Jackson Hole speech and line, “We will do everything we can to support a strong labor market as we make further progress toward price stability.” , they should and will cut 50BPs. However investors, this is where it is getting tricky, because as we have previously discussed it is virtually impossible to tell if this will be too little too late and how an investor differentiates a “soft-landing” from a hard landing until it is too late.

As we have discussed all of the 2^nd quarter it is nearly impossible to tell. The 3 most relevant analogy time periods are 1995 (the last true soft landing), 2000 (the dot.com bubble peak), and 2007 (the beginning of the GFC).

What you will find is during all 3 of these years, during Goldilocks in 1995, during speculation nation in 2000, and even during “the worst is yet to come” 2007, the markets peaked in mid-July and dropped back toward their 50day mva in early August.  In each year the markets set new highs in August and even in 2007 throughout September.  3^rd quarter summer seasonality which we appear to be in right now. Seasonality that is particularly visible during election years. Here are Steve Suttmeier from BAC securities tables on that data once again. The first is monthly seasonality all years since 1928.

And the second table here is the monthly seasonality during election years. You can see that both September and October have historically been down years during Presidential election years, followed by a strong seasonal rally into the inaugural ball late the next January.

Here’s all the fine detail from Sutt’s group for those who want to do more research on their own and pick their own adventure or chart their own path.

Investors the markets have been on edge since mid-July because the Fed is too tight for a slowing economy and slowing job market. Investors are on edge because they are struggling where we are in the economic cycle.  Are we mid-cycle, which would say stocks have years more of consistent gains ahead. That’s the goldilocks 1995-96 outcome. Are we late cycle? Where stocks would be ok returning to investors for maybe another 6-12 months? Or are we near the end of cycle, like 2000 and 2007, where stock markets are topping and rotating into safety sectors because they are forecasting a downturn in the economy and earnings in 2025?  The employment data argues for us being later cycle over mid cycle. We can’t definitively answer that question yet.

That said, for now, don’t get greedy when stocks are up on spikes and volatility is low.  Don’t panic and sell stocks when volatility spikes and stocks drop.  IF you want to hear our teams’ real-time thoughts on these topics, tune in to our September — livestream with myself, Troy and Charles.  Here’s a link for you to pre-register,,—–

Our investment team does believe that over the next few years a more active stock management style will begin to reassert itself and be rewarded relative to passive index investing. If over the years you have found yourself reacting emotionally in your portfolio to Presidential elections and their uncertainty, or when volatility is high like it was in July, now is the time to step back, take a deep breath, give your advisor a call and talk walk through your long-term financial plan.

If you are uncomfortable with wider range of possible equity outcomes, the Oak Harvest team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorbers for a stock portfolio.  You can find information on this new strategy of ours at OakHarvestFunds.com.

From the whole team here, thank you and have a great weekend.

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