Here's the Deal

Economy: In Slowdown

Market Cycle: Bullish - under pressure

_{Week 36 of 52 for 2024: 69.2% of the way through 2024}

Weekly Note:

The first week of what’s historically the worst month for the stock market started with a bang—and not in a good way. It then proceeded to get worse as the week progressed as more negative economic data kept coming throughout the week.

It all kicked off on Tuesday morning with a continuation of softer pricing in oil and copper. The sharp drop right of the gate Tuesday morning further signaled trouble as the decline in demand for both commodities is a sign that economic weakness is beginning to grip the U.S. and global economies.

Later in the day, reports surfaced claiming that the Department of Justice (DOJ) had issued a subpoena to Nvidia over their alleged monopolist business practices. However, Nvidia later responded that they had not actually received any such subpoena.

More bad news followed later in the week, this time confirming a weakening job market.

The JOLTS report showed that the number of available job openings continues to decline, dropping back below 8 million and to the previous pre-pandemic high.

Adding to the gloomy outlook, the ADP nonfarm employment change came in much lower than expected, with only 94,000 jobs added, compared to the forecasted 136,000 and last month’s 122,000.

On the bright side, average hourly earnings increased more than expected, rising 0.4% month-over-month, compared to the 0.3% forecast and last month’s 0.2% gain.

Unemployment also ticked down slightly to 4.2%. However, there was a downside hidden beneath the surface—hiring figures for June and July were revised lower, hinting at a more fragile job market than the headline numbers suggested at the time. The lower unemployment number could also be the result of an increase in temporary construction jobs brought upon by Hurricane Beryl.

A new red flag appeared this week in the bond market. The yield curve between the 10-year and 2-year Treasury bonds, which had been inverted since July 5th, 2022, finally un-inverted. However, a more critical measure—the 10-year and 3-month yield curve—remains inverted, which is often seen as a stronger signal of potential economic trouble ahead.

While the economic storm is not here yet, it is building and getting closer. The better you prepare now, the easier it will be to withstand, and the stronger position you’ll be in when it is the best time to take advantage once the storm passes.

Top Economic Stories of the Week:

• A couple of additional articles will be posted in the comment section as the amount of info from this week is too large for this initial post.

Most Important Data Drops from the Past Week:

This Week in Markets

Last Friday's market rally turned into a classic bull trap, as stocks surged into the week's close, only to sharply drop when trading opened on Tuesday. From there, the market declined almost without pause until the final close on Friday. This sets up a challenging environment, especially as we enter the historically weakest month of the year for stocks. Add to that, we've been seeing large trading ranges since July amid heightened economic risks, driven by the now slowing economy. Navigating the coming weeks will require extra caution as uncertainty and volatility remain elevated.

Even more concerning, strong earnings reports were met with heavy selling—a major red flag that shouldn't be overlooked. While this week's action could signal a larger move, it may also be a case of traders positioning ahead of the anticipated Fed rate cut on September 18th. Many investors are now aware that initial rate cuts often lead to selloffs, so this could be a sign of front-running that expectation. Keep an eye on how sentiment evolves as the date approaches.

The direction of the market through the end of the year has yet to be determined, and the price action lately seems more like a set up to the real move before the election. Expect more of this type of action in the coming weeks with ever-increasing tighter ranges until you see a resolution which will more than likely happen in October.

Keep in mind that Economic Slowdowns are typically when you see the most shenanigans in the market. Meanwhile, September is also one of the months that experiences the most shenanigans. So it’s a good idea for you to expect to see more shenanigans in the near term.

The Week Ahead

Economic Data:

News stories to keep an eye on.

Earnings to watch:

The truth about the BS you’re hearing about.

Claim: The Yield Curve has now un-inverted, so we are either in or beginning a recession.

This is only a part truth as the 10-year and 2-year has un-inverted. However, the 10-year and 3-year have has not and is not currently trending in that direction. Meanwhile neither has steepened, which suggests that the slowing economy is not yet moving into a recession.

In addition, there is no correlation between length or depth of an inversion and the severity of a recession which is often claimed by larger doomsday influencers who have been consistently wrong for years.

This deserves a longer and more thorough post of it’s own, but for now it will help you separate people who understand the economy from those that pretend they do.

WTF of the Week

The USA ranked 6th worst in the world for wealth inequality in 2023, but we’ve narrowed the gap slightly since 2008.

Quote of the Week

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