The Paradox

"The four most dangerous words in investing are: This time it's different." — Sir John Templeton”

Hey, Risers!

Bad news is good news.

Caught in a financial tug-of-war, the S&P 500 confronts a puzzling paradox. Stocks want to rise, but need lower interest rates; yet, lower rates depend on a slower economy. If things slow too much, concerns arise about profits, dampening stocks.

Recent signs like plummeting job openings and shaky consumer confidence have boosted bonds. This is good for bonds but could make stocks uneasy if the trend continues.

It's like a numbers-based story, with each economic report shaping the plot. 

Internationally, China continues to adopt measures aimed at bolstering the economy, with the latest one being a cut to outstanding mortgage rates for the first time since the global financial crisis

As we watch closely, the outcome of the global set-up remains very uncertain, but an intriguing climax is not far.

99rises performance: Our three main long-short blocks are flat to up in 2023 after outperforming the Nasdaq 100 Index by 23-38% in 2022.

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Economy & Markets

Slower growth.

Job Loss

The Bureau of Labor Statistics (BLS) reported nonfarm payrolls grew by 187,000 for the month of July, above the estimate for 170,000. The JOLTS report for July showed a huge drop in openings (8.8 million vs. the Street 9.5 million), while the Conference Board showed a deterioration in consumer confidence. June jobs data was revised meaningfully lower (9.2 million vs. the prior 9.6 million). Initial jobless claims came in at 228,000 versus expectations of 235,000.

Unemployment rate climbed to 3.8%, the highest since early last year and largely reflecting a pickup in participation.

Our take: Job market starting to crack.

Inflation Rising

The Fed’s got a dilemma. Headline PCE inflation rose 0.2% month on month. Unfavorable base effects helped lift annual PCE inflation to 3.3% in July from 3.0% in June, while monthly core inflation of 0.2% pushed the annual measure to 4.2% in July from 4.1% in June.

Our take: Rearing its ugly head again.

Savings Drain

The personal saving rate fell to 3.5% in July, down from 4.3% in June and 4.7% in May. Immediately before the pandemic, savings rates were much higher, averaging 8.8% in 2019. Despite the unquestionably robust consumer spending observed in the initial months of summer, this pattern will likely decelerate during August and September. The surge in prices for products and services, coupled with increased borrowing expenses and a moderation in income growth, is likely to restrain consumers' enthusiasm for spending.