It's kind of perfect to see markets behaving on Groundhog Day like they wish we could just wake up and be back in the 2021 investing landscape all over again. Tech stocks are flying! The Nasdaq trade is hot again! Meta's up 20% today; Carvana's up 40%! Bitcoin is even making a comeback!
Not so fast. As Peter Boockvar put it the other day, "No, we are not going back anytime soon to that period of [monetary] paradise. It's time to use a different investing playbook...The world has changed."
What's extra bizarre is the way the Fed has somehow sparked this latest bout of "risk-on," as if the slightest hint in its meeting yesterday that maybe they won't keep jacking up rates forever suddenly means we're out of the woods and the economy will be just fine. Same for the European and English central banks this morning. Let's not miss the forest for the trees here. The U.S. is slowing sharply, and yet our central bank is still hiking--and overseas, they're hiking by even more.
I am totally on board with the idea that stocks can have a final bout to the upside before the broader slowdown really sinks in. What I don't understand is the argument that we're going to avoid a downturn that appears to have already set in. Manufacturing is in recession. The housing market has slowed sharply. Consumer spending has hit the skids.
This is exactly how downturns begin. "It always looks like a soft landing at first," wrote Michael Kantrowitz of Piper Sandler the other day. Employment is often the last to give out, and it would make sense that firms are extra reluctant to shed workers right now that they had so much trouble adding during the past couple of years.
But at some point, push comes to shove. Challenger just reported that job cut announcements soared more than five-fold in January from a year earlier. That's the biggest January increase since 2009. Tech is still seeing the most cuts, with 41% of the announcements; but retail was the second-highest, followed by finance, real estate, housing, and construction, all of which makes sense. Hiring plans overall meanwhile dropped almost 60% from last year.
When will this all finally matter to markets? "The answer is simply when bad macro data translates into bad earnings and higher credit risks," Kantrowitz wrote this week. Once employment deteriorates, "that often marks the closing of the 'Fed pivot' window and higher risks/lower equities ahead."
How many more months of positive job gains are left? That's the game you're playing if you're chasing this rally right now.
See you at 1 p.m!
Kelly
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