It’s like investors knew what was coming on Friday, August 2.
Two days before, Wednesday, July 31, the Fed had declined to cut interest rates and suggested that it still wanted more “proof” that inflation was coming down.
Then on Thursday, the first day of August, new jobless claims jumped by 14,000 and the rout was on. The S&P 500 fell 200 points, the Dow Industrials was off nearly 600 points.
Friday was the big one – the Nonfarm Payroll number for July. It showed that the unemployment rate jumped to 4.3%. The magnitude of the increase triggered what’s known as the “Sahm Rule” which observes that when the unemployment rate rises at a certain speed, it usually means a recession is at hand.
The S&P 500 dropped another 200 points. It was worse for the Dow Industrials which finished that Friday down 610 points after being down nearly 1,000 points…
The reason for the massive sell-off (over 7% for the S&P 500 in two days) was that investors believed the Fed was out of touch because it was still focused on inflation when unemployment was spiking and recession was looming.
Investors had all weekend to think about it. The S&P 500 opened another 200 points lower. At its worst, the Dow Industrials was down over 1,200 points on August 5.
We’ve since gotten tame numbers from inflation and unemployment – and stocks have rocketed higher.
It’s as if that massive sell-off never happened. As if unemployment isn’t spiking. As if the Fed knows exactly what it’s doing…
That could change (again) tomorrow…
What A Difference a Day Makes
Bloomberg says that, once a year, the Bureau of Labor Statistics reconciles its employment data through March of any particular year with a “…data source called the Quarterly Census of Employment and Wages, which is based on state unemployment insurance tax records and covers nearly all US jobs…”
In the 12 months leading up to March 2024, the BLS has tallied 2.9 million new jobs, an average of 242,000 a month.
JP Morgan estimates the revision will lop 360,000 jobs off the total, which would lower the monthly average to 211,000 jobs.
However, Goldman Sachs thinks this year’s revision could be really bad. They say between 600,000 and 1 million jobs will vanish from the official data. 1 million jobs is 41% if the total. 1 million fewer jobs would mean the monthly average would fall to 158,000…
Given the recent panic about unemployment and recession, if Goldman is right, things could get ugly, and fast.
The revision becomes official tomorrow…
Wha…Wha…Wha Happen?
So if you wanna know why stocks decided to end their win streak at 8 and move into the red today, well, there you go…
And if there’s a big 200-point selloff tomorrow, you’ll have a pretty good idea why…
BUT – here’s the thing. I bet you dollars to donuts the market has a pretty good idea of how tomorrow’s payroll revision is going to go. Seems to me it’s pretty hard to keep things a secret in DC these days…so if the whisper number was really bad, the market would be a lot lower today…
It also seems to me that the aptly named vampire squid Goldman Sachs loves to fear-monger and will talk the market lower to its own advantage anytime it gets the chance. So forecasting a huge drop for employment gains over the last year would fit the Goldman playbook to a tee.
But if Goldman’s right, buckle up, the ride’s gonna get bumpy…
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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