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

Markets sold consistently across the week. Is there more red to expect in coming weeks?

Monday S&P 500 1.20% | NASDAQ 1.79%

Happy Tax Day! Retail sales expanded more than expected in March. Three major companies reported earnings, all three met expectations, all of which were financials. This was not surprising as financials usually head up earnings season. They also give us a good indication of how earnings season should go. Retail sales, however, took center stage as a strong consumer reduces the need for Federal Reserve Board (FRB) rate cuts. This caused an outsized move downward as investors anticipate less stimulus for 2024.

Tuesday S&P 500 0.21% | NASDAQ 0.12%

Housing data for March came in weaker than market expectation. Ten major companies reported earnings, with two missing expectations. Although mild, the losses continued. FRB Chair Powell indicated that inflation’s recent strength does not give the board confidence to start easing policy.

Wednesday S&P 500 0.58% | NASDAQ 1.15%

11 major companies reported earnings on the day, with three missing expectations. Focus was squarely on earnings as there was little economic data on the day. Tech stocks took a hit as AI chip orders for a specific company did not meet expectations. As would be expected this hit the tech heavy NASDAQ harder than the S&P 500.

Thursday S&P 500 0.22% | NASDAQ 0.52%

Initial unemployment claims remain benign. Existing home sales also slowed in March. 11 major companies reported earnings on the day, with one missing expectations. Markets were down for the day, but in a less dramatic fashion. Robust employment data typically is not favorable information when hoping for an FRB rate cut (as investors are).

Friday S&P 500 0.88% | NASDAQ 2.05%

Six major companies reported earnings on the day, with one missing expectations. NASDAQ led the way lower as Tech and communications got hit hardest. The best performers on the day were defensives, like utilities, healthcare, staples, and also financials.

Conclusion S&P 500 3.05% | NASDAQ 5.52%

The week was bloody. There was not a single up day for the S&P 500 or the NASDAQ Composite. The moves were not founded in fundamental data, as earnings did well. Some forward guidance shows warning of slowing revenues throughout the year, but that is normal for the last two years. Economic data, which signals the economy is doing well, has actually pushed stocks lower. The stronger the economy, the less likely the FRB is to act in reducing rates. The sell-off has extended to approximately 6%. It may take a breather in the coming days but expect that we are not done.

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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.