September rate cuts, the Fed white knight to the rescue, will finally happen starting September 18, which the beaten-down bulls desperately need.
A 4% drop will put the Nasdaq back to Nov 2021.
Darren Winters points out that Amazon, Tesla, and Alphabet are already back where they were 3 or 4 years ago, and Nvidia is down 24% from its peak.
Fed fund rates are relatively high and, at 5.25% to 5.5%, well above all inflation rates and double the annual core PCE price index (2.6%), which the Fed uses for its 2% target.
So, monetary policy is in restrictive territory.
For the labour market, the September rate cuts could not come sooner
Job creation has now dropped to the lower end of the range in 2018 and 2019.
Policy priorities shifting from inflation to jobs, with the latter suggesting sizable rate cuts than expected could be in the pipeline.
The layoff wave is still going strong.
Intellizence flagged that large caps made more than 10,000 job layoffs in August.
For every blue chip layoff, there is a multiplier effect on small-medium size businesses. More people in well-paying jobs losing a paycheck means expenditure cuts for the local economy.
So bars, restaurants, and other local small businesses are experiencing a recession as those with jobs cut expenditure for fear of being next to be laid off.
The job market is dismal.
May saw no additional jobs in the manufacturing sector, and in June, 8,000 jobs were axed.
September rate cuts too little too late.
- September 04, 2024: Spain’s largest mobile operator, MasOrange, plans to cut up to 795 jobs, or around 10% of the workforce.
- September 03, 2024: Dunzo cuts 75% of workforce as Reliance-backed firm battles financial woes.
- September 02, 2024: Goldman Sachs, the Investment bank, cut nearly 1,800 jobs amid the annual review process.
- August 31, 2024: Intel may impose mandatory layoffs on over 700 employees in Ireland without severance.
- August 29, 2024: Qoo10 reportedly lays off over 80% of its employees, and only 20 staff remain in its Singapore office.
The downturn in the home improvement business is already visible.
In April 2021, lumber, at its peak during the 2020 lockdowns, was trading at 1,500 USD.
US Lumber prices, at the time of writing, September 2024, are down almost 70% from their peak in 2021, to 488.55 USD.
More lumber mills are closing down, cutting hours.
Canfor, one of the world’s largest lumber producers, said it would cut shifts and operating hours at Southern mills to reduce output by about 215 million board feet every year.
Will September rate cuts be too little too late to curtail tapped-out consumers?
According to a study by Consumer Affairs, only 41% of US homeowners could afford $500 repairs out of pocket.
Companies have made 2024 the year of cost cuts.
Already, 42 operators have provided 2024 capex guidance, and 28 have forecast a decline. Exceptions include cable operators and latecomers to FTTP upgrades, though most emerging-market operators anticipate reduced spending. Long-term capex projections suggest more declines.
September rate cuts could trigger a string of cuts
As Darren Winters noted in Q2 Rate Cut Forecasts.
“Approximately 86% of major financial institutions believe the Fed will make 50 basis point cuts or less in their Q2 rate cut forecasts.
If the recession is far worse than the consensus, the future jobs report could continue trending downwards, which would justify the Fed making more dovish rate cuts than the market anticipates.
Anomaly Q2 rate cut forecasts could provide investor trading opportunities.
So, if the Fed wants to make treasury bonds (US Paper) Great again, they would angle monetary policy towards creating conditions for a worse recession than anticipated and more Fed rate cuts than the market is forecasting.
Getting the market wrong-footed on their Q2 rate cut forecasts would be a Machiavellian way to trigger a Q2 bond rally in 2024,” I wrote in July.
Darren Winters call made in July 2024 played out.
“Bonds rally as Waller says Fed could go big if necessary — but likely not in September,” a piece in Market Watch in September 2024.
It is no secret that the jobs report statistics are overestimated.
Market expectations for the jobs report have been lower since April. The bar is being set low for political gain, so the administration is putting a positive spin on the deteriorating employment situation.
There have been quite a few downward revisions. Both of the prior months were revised down.
So April was revised downwards by 57,000 jobs, and May also by 54,000 jobs.
Moreover, the labour force participation rate is just 62.6%.
Hidden in the latest jobs report is the following;
“The unemployment rate rose to 4.1%. It was 4% in the prior month unrevised, and it went up to 4.1%. That is significant,” said Peter Schiff.
Even the Fed chair Powell admitted job numbers are rigged, noting inconsistencies in the jobs report.
Powell quizzed about the inconsistencies in the data.
His reply was as follows;
“You are right to point to the last report where there were job losses in the household survey and big job gains in the establishment survey, so ahr.. we have ambiguous results, and we have to deal with that uncertainty around data,” said Powell.
So, in a desperate search to seek the truth, could the stripper index give you a heads up, pardon the pun?
The takeaway of September rate cuts
Darren Winters’ fifty cents worth is that the US economy, highly leveraged and hyper-sensitive to interest rate movements, is already knee-deep into a recession.
More rate cuts to come following the September rate cut
Darren Winters says he would not be surprised if the Fed cuts more aggressively than the market consensus, bearing in mind the consensus tends to believe the official narrative.