Here's the Deal

Economy: In Slowdown

Market Cycle: Bullish

_{Week 34 of 52: 65.4% of the way through 2024}

Weekly Note:

Economic growth has begun to slow, but the stock markets are still rising. This is a normal and expected at this stage of the credit cycle. Even though the economy is cooling, there is still a lot of money waiting to be invested, which can push the markets higher. Additionally, consumers are still spending money, and while they might be complaining about high prices, their continued spending is what really matters for both the markets and the economy.

Looking ahead to this coming week, it's usually the time of year when market trading volume is at its lowest. This means there are fewer trades happening, making it easier for large investors, or "big money," to influence prices. So, if you notice bigger price swings than usual, keep in mind that it could be due to the low trading activity. This also explains why the last month and a half has been quite eventful; Summer generally has less trading volume compared to the period from October to May.

I believe that the period we're in right now, which started July 16-17, is just setting the stage for the real movement in the markets that we can expect from this October through May of next year. In the meantime, be prepared for a lot of "noise"—especially from those who are predicting a market collapse. These pessimistic voices have been wrong for nearly two years now, and while they're thirsting for a win, it's unlikely that this will be their moment.

In my opinion, there will be another great opportunity to buy stocks in the next month or two after some market turbulence. If investing is your interest, now is a good time to do some research and make a list of stocks you're interested in.

It's now almost certain that the Federal Open Market Committee (FOMC) will start cutting interest rates on September 18th. However, it's important to remember that historically, market crashes and recessions often occur after rate cuts begin. That said, a small cut of 0.25% to 0.5% is justified right now and shouldn't be a cause for concern. But if the FOMC decides on a larger cut, or worse, makes an emergency cut in the coming months, that could be a signal to start worrying and prepare financially.

For the moment, it seems we're probably at least a year away from a recession should one occur, assuming there are no unexpected events like a new surge in inflation or a major firm collapsing and wiping out billions of dollars overnight. This kind of collapse could potentially come from issues in commercial real estate, although so far, the drawdowns there have been relatively stable. The timeline for a recession could also be pushed back even further if consumers keep spending. In an ideal scenario, a recession might not happen at all, and we could continue on a path of sustainable growth.

This coming week, many retail companies and businesses in the consumer discretionary sector will be reporting their earnings for the previous quarter. It will be interesting to see how strong consumer spending was in the second quarter and where people are choosing to spend their money.

For now, everything seems stable, but it's important to be prepared. Make sure your emergency fund is well-stocked or that you're adding to it each month. When the time comes, the move will be fast so you'll want to be protected in case of a loss of income. Additionally, being financially ready will allow you to take advantage of potentially great investment opportunities that could arise, offering some of the best deals we'll see in the next 5-10 years.

Top Economic Stories of the Week:

Most Important Data Drops from the Past Week:

This Week in Markets

The markets have bounced back and continued to climb after hitting recent lows caused by a significant spike in the VIX (Volatility Index) on Monday, August 5th. Since that turbulent morning, the markets have surged upward, while the VIX has sharply declined.

The S&P 500, Dow Jones Industrial Average, and NASDAQ have nearly recovered to their all-time highs after experiencing retracements of 10%, 7%, and 16%, respectively, a few weeks ago. Similarly, Small Cap stocks are close to reaching their 52-week high after a 14% pullback during the same period.

As we approach the two-year anniversary of the current Bull Market, we can expect continued market strength into the new year and beyond. However, some price fluctuations are likely over the next month or two, as markets tend to be more weaker in August, September, and early October.

The Week Ahead

Economic Data:

News stories to pay attention to this week.

• Nvidea (NVDA) reports after the bell on Wednesday, Aug 28th. Over the past 24 months, NVIDIA has become the most critical company to watch for insights into the US economy, surpassing Apple in this regard.

• CrowdStrike (CRWD) will also report its earnings after the market closes on Wednesday. Recent memories of their significant technology outage last month might still be fresh, as it was a major incident with substantial consequences. Despite this, CrowdStrike remains a strong company, and their CEO is considered one of the top leaders in the country. His prompt and transparent response to the outage, taking full responsibility and addressing the issue head-on, was impressive and relatively rare.

  This kind of leadership can turn a challenging situation into an opportunity for growth. By thoroughly investigating the issue and implementing measures to prevent future problems, CrowdStrike has the potential to emerge even stronger. It will be important to watch how they continue to handle the situation and whether they can leverage this experience as a growth catalyst.

Earnings to watch:

The truth about the BS you’re hearing.

1) Claim: Inflation is caused by greedy price gouging corporations.

Among the myriad of falsehoods circulating in the realm of politics today, this particular claim stands out as particularly egregious. It is a stark example of oversimplification, attributing our current challenges to a convenient scapegoat. This simplistic narrative is appealing because it provides an easy target for blame, thus gaining undue traction.

Below, you will find an insightful analysis on X that offers a thorough deconstruction of this clearly unfounded assertion.

The true origin of inflation lies in the surge of new money introduced through the initial and ongoing responses to the pandemic. The responses to the pandemic by governments around the world also contributed to inflation by disrupting the supply chain, further complicating the economic landscape.

2) Employment Revisions

Claim(s): The government pumps out knowingly wrong and made-up economic data for… <enter politically biased catchphrase here>.

Earlier this week, the U.S. Bureau of Labor Statistics (BLS) revised the employment figures for the period from April 1, 2023, to March 31, 2024. The revision was substantial, revealing that the economy had added 818,000 fewer jobs than previously reported.

Such revisions are part of a scheduled process that occurs twice a year. It is undeniable that this particular revision was significant and warrants a discussion on how to improve the accuracy and reliability of the reporting process. However, it is also essential to consider the broader context: we are navigating a credit cycle that witnessed an unprecedented global supply chain disruption, a historical anomaly. Given this extraordinary situation, extreme data readings are not only expected but are a reflection of the unique challenges we face during this period.

Is our data collection process in the U.S. flawless? Certainly not. Yet, it stands as the most advanced and reliable system ever established in human history. It is continually evolving, with improvements accelerating at an unprecedented pace.

However, the handling of this particular data release was amateurish. This event, though usually mundane, was highly anticipated due to the expected large adjustment—estimates ranged from 600,000 to 1 million fewer jobs. The delay of over 30 minutes in releasing the data only compounded the issue, leading to a flurry of inaccurate figures circulating. Interestingly, during the delay, some resourceful bankers called the BLS at the phone number on their website and received the correct figures, while the rest of us were left refreshing the website. Which of course brought out the nutters and their quick finger-pointing at unfounded conspiracies.

This incident highlights a significant lapse by an agency that has struggled with competence issues. For those interested in a deeper understanding of the BLS process, Nick Timiraos from the Wall Street Journal has shared a valuable tweet thread that offers clear insights. It’s a brief yet informative read worth exploring.

WTF of the Week

***(If you’re not familiar with Twitter/X, read Ethan’s post first and then the one above it as it is in response. Also, he deleted the post shortly after the response. I have no idea and don’t care if this is true, because it’s funny as hell.)

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Quote of the Week

“A positive mind finds a way it can be done. A negative mind looks for all the ways it can’t be done.”

-Napoleon Hill

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