A better-than-expected jobs report this morning is sadly not what the market was/is looking for. Tough to describe this labor report as anything other than “tight”. +240k jobs after revisions for prior months, strong wage growth, low unemployment level, labor participation waning. It’s a strong jobs report across the board. In late spring 2020 we would have been dying to get such a report, but now as we attempt to exit COVID, good news means bad. Good news means the Fed is likely to continue rate hikes into Q1 2023.
Long gone are the days of “lower for longer” for the Fed with regards to rate policy. The new world might be “higher for longer”. This week’s Chicago PMI data and our own recession model are both signaling virtually 100% probability of a 2023 recession. So is a UST yield curve that’s -75 bps inverted. A lot of market damage has already happened in anticipation of such though: valuation levels for equities have experienced a major reset lower and speculation (i.e., crypto etc.) has been obliterated. What do you own to survive a recession? Quality assets. Strong balance sheets, real earnings supported by pricing power, real cash flow. It’s how we’ve been positioned and will remain positioned. Own – never rent – quality assets. They work best thru both thick and thin economies.
The Fed will likely/probably/certainly hike +50 bps in December and down shift to 25 bps in February. The silver lining is that this good labor report is likely the last (it’s strange to even type that). The significant layoffs and job cuts announced over the last 45 days will manifest themselves in the December job report. We need weakness because “bad data means good” with regards to the final months of this hiking cycle.
Chief Investment Officer
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