Weekend Post: AAII Sentiment Over 50% Bullish
Unemployment rising means labor market is slightly cooling but still tight
Recap
Market drops to Greed
When the market is 50% bullish caution is warranted but a healthy pullback has been due for awhile now—I was forecasting it would happen in Feb.
New 52-Week Highs vs New 52-Week Lows
NYSE New 52-Week Highs: 289 vs New 52-Week Lows: 15
Nasdaq New 52-Week Highs: 364 vs New 52-Week Lows: 85
McClellan Oscillator
New Highs - New Lows
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Today
Although the unemployment rate rose to 3.9%, we need to look at the bigger picture: this is the longest stretch of <4% unemployment since 1969—and we still on the Golden Path.
Bostic also talks about Golden Path—see below:
The story is similar for economic growth. Econometric evidence suggests that past tightening cycles led to about a half-percentage-point decline in real gross domestic product over two to two-and-a-half years—a recession, basically. Bucking that history, real GDP grew at a 3.3 percent annual rate in the fourth quarter of 2023 by the Bureau of Economic Analysis's initial estimate, and at a 3.1 percent clip for all of 2023. That's a more robust performance than private sector forecasts anticipated and, quite frankly, more robust than what we at the Atlanta Fed expected.
The robust economic data surprised not only the private sector but also the Atlanta Fed.
I asked one gathering of business leaders if they were ready to pounce at the first hint of an interest rate cut. The response was an overwhelming "yes."
If that scenario were to unfold on a large scale, it holds the potential to unleash a burst of new demand that could reverse the progress toward rebalancing supply and demand. That would create upward pressure on prices. This threat of what I'll call pent-up exuberance is a new upside risk that I think bears scrutiny in coming months.
Bostic is saying he does not want the Fed to hint at an interest rate cut because it can reverse the progress toward getting supply and demand into balance for 2.0% inflation.
So the upcoming March 20th FOMC meeting might surprise the market when the Fed signals they will stick to higher for longer until inflation credibly falls to 2.0%.
GDP growth is trending down slighty
Even with the large downward revisions (due to Jan being a blockbuster), we are clearly not in any meaningful slowdown.
The jobs report continues to be healthy—a lot of people are employed and many new jobs are being created.
Claudia Sahm says we are nowhere near recession—her indicator is not flashing any warning signs.
We are still far from hitting 0.50%
We still are seeing a lot more job openings than unemployed.
Labor market is slowly starting to come into better balance.
However, as Daniel points out, Employee Confident fell to a new record low—so could this be a leading indicator of larger layoffs coming?
There is a hint of weakness but nothing concerning yet.
Presidential Years tend to be bullish
We are nowhere near a bubble
The Dot Com bubble comparison is intellectually stupid—there was zero to little earnings for many dotcom companies. Today is much different and there is a lot more E (earnings) in the P/E.
Nvidia is the new Apple, so if it corrects, expect the rest of tech to follow.
Costco COST 0.00%↑ will be focusing on reducing prices, which is good if large retailers do proactively doing this but it could also reflect that consumer demand is weakening.
Forecast
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