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Inside the Economy: Jobs, Markets, and Foreign Demand

By June 26, 2024No Comments

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This week on “Inside the Economy”, we discuss payroll and job openings, market valuations, and foreign demand in U.S. markets. The rate of U.S. job openings has dropped from its post-Covid peak. Is this a negative event or normalization in the job market? In other news, there is a large disparity between the S&P 500 market capitalization as a comparison to the European market. Does this mean the U.S market is overbought? What does this tell us regarding the U.S. dollar as a currency? Additionally, foreign demand has increased in the U.S. market. What securities are foreign investors pouring money into? Tune in to learn more!

 

Key Takeaways:

        • 10-year bond yield at 4.25%
        • U.S. Head CPI at 3.2(YOY)
        • Unemployment at 4.0%

Full Transcript:
Welcome to another edition of Inside the Economy!

I’m Larry Howes. Thanks for joining me!

Well, this time we’re going to talk about payroll and what else is going on in the market, which, frankly, is not a lot. New numbers for CPI inflation is slowly working its way down. Bond yields have come down a teeny tiny bit all the from three months to 30 years, coming down in anticipation of the Federal Reserve lowering rates September initial jobless claims. You look for drama here, and there isn’t any.

If you’re going to go into a recession, generally problems start with either housing or jobs, and we don’t have problems in either one. The chances of having a recession are becoming slim. We’re not in no way, but foreseeably we’re simply not going to have a recession. We’re going to work our way through this and generate a soft landing like everybody has talked about for a variety of reasons.

One, you look at payrolls, and even from June 19th, the payroll growth. Yes, there’s been more money going through payroll. That’s volume in this and more people. That’s the count going through is new jobs have been growing fine. This is not an employment market that’s falling apart. You look at when we were having all of this, oh, the job openings everywhere. Well, that was bad data. A lot of duplicate ads and all kinds of things going on. As that stuff normalizes, we’re down to kind of where we were, not a lot of new job openings.

People are finding jobs, especially those that are looking for them. Houses have not collapsed. Housing, if it really were to fall apart, given to high prices and, oh, I have to pay 7% for a mortgage. The drama of that, well, the housing market has normalized down with what’s available on inventory. There’s still about three and a half months’ worth of inventory. And the sales have not collapsed. They’ve sort of stabilized the stock markets, which near and dear to our hearts. The blue down there, well, you know, that’s the Dow, and the black up there is the S&P 500 and the green, the Nasdaq, the small companies, they’ve been doing pretty well.

S&P 500, well, that’s all Nvidia and the Nasdaq has got a couple of other really high flyers. But the market is finally, well, not finally, but is over, overbought. Too much money chasing too few assets, and it’s overbought a little bit. And this triggers some problems and this triggers some sells, which today Nvidia is actually having a, let’s call it a correction, not really a correction. Last time I saw it was only down about 6%. But they don’t have earnings yet, substantial earnings to justify their prices. So that’s going to correct itself.

The stock market is not in a bubble. The stock market is a tiny bit overbought. The stock market is right where earnings ought to be. It’s not a bad place and it’s certainly not at a place that it’s collapsed. So you’re going to have a huge return here in the near future. It’s just not in the works compared to what’s going on in Europe. And Europe is really trying.

The S&P 500 is clearly outperformed for a lot of reasons. That’s not just the strength in the dollar, that’s earnings and new companies and typical capitalism doing better than a lot of things that’s going on in Europe.

This also takes a lot of the wind out of the sails of the euro becoming an important currency in the globe. It’s not. And if the problems, political problems in France continue to get worse, it’s going to take, well, the last chance of that ever being important, it is all the dollar. The Yuan, no, the euro was the only possibility. The Yen, no, it’s becoming more and more the dollar.

In fact, even around the world, this is just the bond market. All the US corporates, just the corporates. Not even the treasuries coming from all over the world. I mean, we’re talking $200 billion, $180 billion just in March. Well, the prospects are here, not anywhere else. And it’s not like the United States is a shining, glorious star. It’s just, it’s the only game in town and becoming more so.

People are leaving places. Well, we knew they were leaving China and the UK and India and South Korea. Yeah, well, they want opportunities.

Frankly, if you’re on the lam or trying to get out of the financial system or have some tax problems, you go to the Emirates, United Arab Emirates, Dubai or Abu Dhabi, and some bunch of people go in there, especially Russians. If you’re not on the lam and want to play the game without being on the run, come to the US or Singapore. If you’re Chinese, works out for them. They just have to get away from the environments they’re in. The Federal Reserve. And I know there’s still a lot of conversation about when the Fed is going to lower rates and everything will be great.

Then I’ll remind you again that I think the first opportunity that we’re ever going to see for the Fed to lower rates is going to be September at the earliest. If they do, it’s not going to be much. In fact, they’ve really come out and said, well, here is our neutral rate as we see it. And the neutral rate is where they’re thinking the cost of money ought to be. Well, it’s in the very high threes. We’re at five and a quarter right now. That tells me if they start lowering, they certainly aren’t going down to zero.

So don’t keep thinking that it will be a substantial amount of time before they get out of the fours, and then they’re probably going to stay there. Remember, they want inflation at two, cost of money at three, maybe three and a half mortgages at five. You’ve heard that before. It’s simply more official.

So when they start lowering rates, it’s going to be a glorious three or four days for the bond market, and they’re going to have fun with it, but it’s going to stabilize in a hurry, and then we’ll be back to yield and quality. That has not changed, nor is there any drama, nor is there anything that needs to be fixed in the way of a bubble.

Finally, there was a question or two about, gee, isn’t this horrible about property and casualty insurance? And, well, this is historically where PNC coverage rate increases have come. And you go back to about 2000, 2002, we had some bad hurricanes and the industry just absorbed that and threw a bunch of new rate increases. And they’ve had a few more in 2018. There was a couple of problems. There was another storm, and then we had kind of a, well, prices went down.

Now they come way back up. Most of that is inflation, wildfires, so on and so forth. They’re shifting. They’re starting to shift their risk. There’s a lot of counties in California that have learned that the hard way because you can’t get coverage. Or if you have a house sitting on a beach someplace, especially in Narragansett, you’re not going to get coverage. These rates aren’t going to come down.

We’ll just have to get used to it. And it’ll be part of the new inflation side of P&C coverage. That’s really about all that’s going on. We’re still in the summer doldrums, but there’s nothing to worry about. The stock market is doing fine. And after Nvidia comes around and corrects some things, we’ll see how the rest of the earnings in the S&P 500 get better over the next couple of quarters. As always, send questions along to info@shjwealthadvisors.com and I’d be happy to deal with it.

Thanks for joining me!

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