QUOTE OF THE WEEK
“Difficult roads often lead to beautiful destinations.” – Unknown
TECH CORNER
Has the Recession Started? Probably.
The stock market freaked out on Friday of last week and Monday of this week. It rallied on Tuesday but is down as of mid-morning on Wednesday. From its July 16th high through mid-morning Wednesday, the S&P 500 is down -7.84% and the Nasdaq is down -11.93%.
A few things suddenly scared investors: The Friday jobs report that showed hiring slowed a lot for the month of July plus the Fed decided not to cut interest rates.
I know we have been predicting a recession for what seems like forever. The data has been moving in that direction at a snail’s pace but it looks like we are on the precipice or we are already in a recession. We will get some more data on August 15th when Factory Utilization and Retail Sale reports come out.
However, the following statistics look terrible.
Since the beginning of 2023 the monthly non-farm payroll reports have been revised down 82% of the time. Revisions historically have a strong tendency to be pro-cyclical and predicative of overall economic activity.
Staffing agencies have no new demand from companies seeking new employees.
Corporations are cutting hours and jobs for current employees. Total full-time employment is down -1.2% year over year. This has “always” coincided with a recession for over 50 years going back to the recession of the early 1970’s.
Unemployment is the highest it’s been in the U.S. since the pandemic recovery began in 2021, as higher interest rates have naturally slowed the economy down.
There have been 39,000 permanent full-time layoffs since the beginning of August. Intel just announced 10,000 layoffs.
Unemployment has risen from a low of 3.4% to 4.3% as of the last jobs report on Friday. Now this is important. This increase in unemployment has triggered the Sahm recession rule indicator. The so-called Sahm Rule is triggered when the three-month moving average of the U.S. unemployment rate is at least half a percentage point higher than the prior 12 month low. This rule, when triggered, has without fail predicated we are in the initial phase of a recession. I want to stress it has “never” been wrong.
We are still positioned in U.S. guaranteed bonds and notes. All this turmoil has been great for our portfolios as interest rates have fallen. This is normal during recessions. When interest rates decline, bond prices go up. We anticipate we will soon be extending the duration of the portfolio as this downward trend in the economy continues. Hopefully we will be making money in bonds while the stock market declines.
