Quiet Quitting is the Devel! | September 2, 2022 | FFS

The week was all about inflation data, but have we inflated its importance?

Monday S&P 500 0.04% | NASDAQ 0.03%

Markets were little changed on the day. There was very little economic news out before the bell on Monday. The week will likely be sharply focused on Wednesday when we get the updated figures for March inflation. The report is expected to show an increase from February.

Tuesday S&P 500 0.14% | NASDAQ 0.32%

Small business sentiment slipped in March to the lowest level since January 2013! Even still, markets advanced ahead of inflation data on Wednesday. Growth stocks out-performed which signals that an increase of inflation data would likely not hamper growth stock leadership. This is important because the rate cuts expected later this year would favor growth stocks most.

Wednesday S&P 500 0.95% | NASDAQ 0.84%

Consumer Price Index (CPI) information showed that inflation has stopped cooling. A 0.1% reading was replaced with a 0.4% reading. The main culprits were transportation services, energy, and home services. The markets moved sharply lower, but likely on the Federal Reserve Board (FRB) minutes release, rather than on CPI data. FRB Minutes showed concerns that inflation was stagnating, endangering the likelihood of the FRB cutting rates later this year.

Thursday S&P 500 0.74% | NASDAQ 1.68%

Producer Price Index (PPI), which is a proxy for wholesale inflation rose less than expected. Initial jobless claims fell on the day supporting a strong job market. The weaker than expected inflation data led to a bounce back rally by markets. Little was changed about rate cut expectations moving forward however, given the FRB minutes from March.

Friday S&P 500 1.46% | NASDAQ 1.62%

Michigan Consumer Sentiment is projected to slip, but remains in the high 70’s. Financial firms got earnings season underway on Friday and they did not impress. The slide on Friday solidified a down week for equities. The Nasdaq led markets lower on the day, but its Thursday rebound mitigated losses for the week.

Conclusion S&P 500 1.56% | NASDAQ 0.45%

The week ended well into the red. The fall represented the worst week for the S&P 500 since January. In January the focus was on the markets accepting that the FRB may only cut rates three times this year. This time it is on the realization that perhaps the FRB may not cut rates at all. As of now investor expectations are that the FRB will cut rates one, maybe two times (September and December). The meeting in two weeks should provide more clarity. Even with this change to rate cut expectations, it will be interesting to see what action the FRB takes with Quantitative Tightening. If they do start to slow the selling bonds that should provide some relief.

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You been quiet quitting behind my back, Bobby? Find out what it is and why it is the devil!

Monday S&P 500 0.70% | NASDAQ 1.00%

The hit from Friday continued into Monday. Yields in the short-term market continued to rise reflecting higher expectations of a Federal Reserve Bank (FRB) rate that is sustainably higher.

Tuesday S&P 500 1.10% | NASDAQ 1.10%

Markets opened in the red on news that Taiwan fired missiles at a Chinese drone. JOLT’s job opening rose in July and that supports the FRB path higher on rates. The added economic strength hurt equity markets.

Wednesday S&P 500 0.78% | NASDAQ 0.56%

Equity markets moved to the south Wednesday… again. The hangover from the Friday FRB speech continues to rattle markets. The end result of August was a down month even after markets grew nicely in the first half. Interestingly, Tech outperformed and oil prices were down. These both reflect a view of a less aggressive FRB.

Thursday S&P 500 0.30% | NASDAQ 0.26%

September started in the green, at least for the S&P 500. Tech stocks and commodities fell on the day. The stocks that were green tended to be healthcare and consumer staples. The move was decidedly defensive.

Friday S&P 500 1.07% | NASDAQ 1.31%

Happy Jobs Friday! The unemployment rate rose to 3.7%. The increase was deceptive however, as the economy added over 300K jobs, in line with expectation. The reason for the rate increase was that participation rose. This created more of a gap between those looking for work and those employed. This is actually good news. Lately good news for the economy has been bad news for the market and that held true on Friday.

Conclusion S&P 500 3.29% | NASDAQ 4.21%

Inflation, inflation, inflation… One factor that contributes to the inflationary story is the employment rate. However, there is a new factor at play that makes the unemployment rate not quite as reliable. Quiet quitting… This is where an employee does just enough of their job to not get fired. Meanwhile they look for other work or even try to start their own business. While this might seem like a small problem, productivity is suffering. Productivity has been erratic lately, measuring worse in the last two quarters than it has since the Financial Crisis. This is a problem because as an employee does less work, they are effectively increasing their wage for the services rendered. This has an inflationary effect. The new economy may be less about going and asking your employer for a raise (which leads to embedded inflation) and more about doing multiple jobs half insert expletive… This creates an inflation that we don’t account for. It also implies an underlying health to economic spending that we currently cannot measure.