Dan says the stickiest parts of inflation are wage inflation, and he thinks that will correct itself as the unemployment rate moves higher.
Dan predicts the news for individual companies is about to get a lot worse.
Dan also says there is no reason why the S&P 500 shouldn't go back to those June lows if the economic data continues to get worse.
Dan predicts the news for individual companies is about to get a lot worse.
Dan also says there is no reason why the S&P 500 shouldn't go back to those June lows if the economic data continues to get worse.
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NewsTranscript
00:00 Tim, what do you say?
00:01 Well, we were warned, folks, about potential bowling metaphors and analogies and anyway,
00:07 puns.
00:08 So, anyways, we'll be careful.
00:09 As much as I am concerned about China-Taiwan, that's not what the markets were worried about
00:13 today.
00:14 Markets were worried about a combination of three Fed presidents reiterating Powell's
00:17 message from Friday.
00:19 And how about this JOLT status?
00:20 So for people that don't know what the JOLT status, it's basically job openings.
00:24 The rest of that acronym you can figure out.
00:26 It doesn't really matter.
00:27 What's important is that there's so many more job openings than there are people to fill
00:31 them.
00:32 And as we have a payroll number on Friday and some CPI numbers across Europe and China
00:36 over the next couple of days, that is where the market's anxiety is.
00:39 It's rates that if you looked at a year ago, did you know that the two-year rate was at
00:43 21 basis points?
00:44 It's now at 346 a year later.
00:48 So twos, tens, that spread we like to talk about to at least give you some indication
00:51 of also where the economy is based upon the shape of the yield curve.
00:56 It was 125 or so basis points a year ago.
00:59 It's negative 36 and counting.
01:01 So I think today was all about reiteration of interest rates moving higher.
01:05 Equities don't like that.
01:06 That's been digested all day.
01:08 And as much as I think geopolitics have something to do with this and there's other reasons
01:11 to be concerned, this is what we're concerned about.
01:14 And the JOLT really underscores the notion that inflationary pressures will remain, that
01:17 wage pressures will remain for corporations.
01:20 That is something that the Fed is going to have to even fight maybe harder to tamp down.
01:24 Yeah, so if you listen to most economists or strategists, they'll tell you that the
01:27 stickiest parts of inflation are wage inflation.
01:29 Again, I kind of think that that will kind of correct itself as soon as we have the unemployment
01:33 rate start moving higher.
01:35 And that's the one thing, one piece of the puzzle that really hasn't jived with a lot
01:39 of this negative data that we've seen.
01:40 If you think about the stock market, Mel, you just said that the S&P is down almost
01:44 8% in the last 10 trading days.
01:46 We've had 10, excuse me, four moves of greater than 10% from a relative high in 2022, averaging
01:53 about 13% lower.
01:55 OK, so here we are down about 7.5% or so from those recent highs.
01:59 If you think about all of those things that you say are weighing over the economy, well,
02:03 they're clearly obviously weighing over the stock market here, too.
02:06 And I would just say it's not done yet, even though that we've retraced 50% of the move
02:10 off of the June low.
02:11 I mean, I think if you think of the stock market as a market of stocks, well, the news
02:15 for individual companies is about to get a lot worse.
02:18 It's been incrementally bad all year.
02:20 The stock market has been discounting that data as it's been careening lower.
02:25 We had that rally when people thought the Fed was going to change their tune.
02:28 That's not happening.
02:29 There's really no reason why the S&P 500, if the economic data continues to get worse,
02:33 which is going to cause the company level data, the earnings level to get worse, why
02:37 the S&P shouldn't go back to those June lows.
02:39 We just heard tonight there was a report that Snap is about to lay off 20% of its workforce,
02:43 so even more pain to come.
02:44 And we continue to hear these drips and drabs about layoffs and job losses that haven't
02:51 hit the numbers yet, or we haven't seemed to see them in the numbers yet, Courtney.
02:54 Yeah, and I think we've talked about this previously, but where a lot of those job losses
02:57 are happening are some of your big tech companies, and those are some of the things that are
03:00 selling off the most right now.
03:02 And yes, those started to recover a lot when things were recovering the last two months,
03:05 but we were saying that probably isn't going to last.
03:07 You're seeing now those are starting to get repriced.
03:09 I would continue to proceed with some caution there on some of your larger technology names.
03:12 I do think those are going to be the ones that are feeling the pain as we're starting
03:15 to see inflation is maybe not coming down as fast as people want.
03:18 Those are the things that are going to be likely the most susceptible.
03:21 Guy, Tim pointed out how far we've come in terms of the two-year yield in just, why are
03:27 you laughing?
03:28 0.21%.
03:29 I missed you, Mel.
03:30 I mean, I missed you.
03:33 I missed you all.
03:34 I mean, you've been gone.
03:35 From the bottom of my heart.
03:37 I'm so glad to be back.
03:40 But a lot of, especially in terms of the context for a potential, if you are a bull and you're
03:47 hoping that there's going to be a big move higher in tech or that that is going to be
03:51 the backbone of the market, the rate backdrop in and of itself is completely different this
03:56 time around.
03:57 So if you're hoping for some sort of a revival in some of the lower quality names, I don't
04:02 know, that's going to be hard.
04:04 No, that's exactly right.
04:05 And since you started with bowling, I'll just throw one more bowling metaphor out because
04:09 why not, Mel?
04:12 For the last, you know, it coincides oddly enough.
04:15 You know, when I was a kid, there were no bowling guards in the gutters.
04:18 In other words, if you were lousy, you were throwing it in the gutter because there was
04:21 nothing to stop the ball.
04:23 Then some genius came up with the idea, well, maybe we should democratize bowling and put
04:28 these gutter guards up.
04:29 So everybody thinks they're remarkably Earl Anthony.
04:32 Well, that's what the Fed did too for 15 years.
04:34 But you know what?
04:35 The gutter guards are down, Mel.
04:38 And now everybody's seeing what a miserable bowler they are.
04:41 And I'm actually being half serious.
04:42 I mean, now exactly your backstop's not there.
04:45 So I think you make a great point.
04:46 Two-year yields are going to continue to go higher.
04:48 I think there's a chance that the 10-year yield actually starts to go lower from here
04:52 in a flight to quality.
04:53 But I will say this, so it's not all doom and gloom on this Thursday.
04:58 The HYG didn't get cratered today and the VIX surprisingly closed unchanged.
05:03 And, oh, by the way, today's low is basically a 50 percent retracement of the recent low
05:10 in June and that high we made a few weeks ago north of 4,300.