The Other Side of the Rate Cut
A reasonable shift in focus excites a little bit of fear.
The Federal Reserve is now prioritizing the employment part of its dual mandate rather than inflation.
And investors, traders, and speculators are concerned about what that shift means for the economy and earnings.
Right on time, the Bureau of Labor Statistics will deliver the July nonfarm payrolls report at 8:30 a.m. ET.
There is always something else, something different, something new to be concerned about, especially for investors, traders, and speculators.
Risk management is a critical part of maintaining a portfolio of assets over time.
If you’re not identifying risks and adjusting for new information – and new opportunities – what are you doing but collecting.
We can be reasonable, though, in our assessments.
And price action over Wednesday and Thursday doesn’t seem reasonable, whether or not weekly jobless claims came in higher than expected.
The Russell 2000 $RUT, for instance, was down more than 3 percent.
At the same time, the bond market was pricing in three rate cuts this year, with the yield on the 10-year US Treasury note dropping below 4 percent for the first time since February.
RUT, of course, is only just coming off a historic period of outperformance versus the S&P 500 $SPX. Can it be a “sell the news” thing when the Fed hasn’t cut even once yet…
Here are a few random notes to keep in mind as well.
No. 1, it’s summer. Volume is down. No. 2, we’re in a seasonally weak period.
And, No. 3, so far, 2024 is the best presidential election year ever for the SPX, despite recent volatility in that particular market.
Still, it would be irresponsible not to account for potential downside indicators, as Jean-François Tardif of Timelo Investment Management reminds us in a recent StockPick Interview.
This morning’s incoming data – less noisy than claims data but still subject to future revision – will offer more clues about the health of the labor market.
There is no question that hiring and wage growth are slowing. But there’s nothing to suggest a collapse is on the horizon.
As much as Wednesday was an overreaction, so was Thursday. Probably best to be prepared for more of the same this Jobs Friday.
Volatility spikes create both inefficiencies and opportunities.
That’s important to remember right now.