Stocks opened slightly lower this morning before rallying and then plunging through noon. It was another choppy am session, prompted by confounding economic data.
Seasonally adjusted US first-time unemployment filings for the week prior totaled just 213,000, missing estimates and representing another initial filings drop. Unadjusted first-time filings fell to 156,000, notching a new low unseen since 1969.
It suggests that near historic levels of labor tightness have arrived in the US, which ultimately skews very bearish with a Fed rate hike approaching next week.
Retail sales, on the other hand, provided bulls with a slight boost this morning. August retail sales beat estimates (+0.3% month-over-month vs. +0.0% expected) but July retail sales were revised substantially lower, to -0.4% month-over-month from +0.0%. That’s a net decrease of 0.1% for US retail over the last two months. And, remember, bad news (not related to inflation) is still good news for stocks.
Overall, though, the downward revision did little to keep the bears at bay. The market continued its short-term downtrend as investors grew increasingly anxious over next week’s rate hike.
“The Fed needs to pick their poison. Do you continue strong ahead to tamp down inflation at the risk of recession, at the risk of increasing unemployment? It’s truly a dilemma, but I think that given what we have heard from the Fed the focus is squarely on inflation,” said Morgan Stanley’s Mike Loewengart.
Nearly everything – stocks, crude oil, and even gold – fell through noon today. Ethereum, which was supposed to have a good handful of days due to its recent mainnet merge, sunk as well.
“Now that the merge has happened, traders and funds are positioning themselves out of it, that trade is kind of over,” said Jason Lau, chief operating officer at Okcoin.
“On the other side, asset managers and holders are actually positioning themselves ahead of a longer-term game. The Ethereum merge is really just one step in a sphere in a long series of upgrades that will lead to more scalability will lead to an upgrade in performance of the Ethereum network.”
But will that translate into long term gains for Ethereum holders? Maybe, maybe not. The crypto market has more or less followed the S&P this year despite several milestone updates to a handful of the market’s top tokens.
If the S&P crosses below support at 3,900 – a price level it’s very close to touching at the moment – cryptocurrencies stand to get whacked again, too.
It seems like the only safe(ish) assets these days are Treasurys. Yields didn’t react much at all to this morning’s sudden bearish reversal, and, according to billionaire “Bond King” Jeff Gundlach, they’re set to outperform in a big way.
“Buy long-term Treasurys, because the deflation risk — in spite of the fact that the narrative today is exactly the opposite — the deflation risk is much higher today than it’s been for the past two years,” he said.
“I’m not talking about next month. I’m talking about sometime later next year, certainly in 2023.”
We’ve talked about this idea before, that inflation could rapidly flip to deflation at some point next year if the Fed hikes the US into a vicious recession. Gundlach thinks it’s coming.
And he might be right. But that’s a long-term play, and for investors watching their portfolios tumble with each passing day, it’s not the kind of advice they’re necessarily interested in. Especially with short-term bears – particularly those targeting tech – raking in the dough week after week.
