Jobs and Stocks Gone Bonkers: The Year of Surprising Twists and Turns!
By all accounts, both the jobs and stock market are doing things no one would have predicted. The key is how long will it last.
Cartoons of the Week:
2023 has been a year of Anomalies
Another month, another blowout jobs report.
This morning the employment data came in WAY better than expected.
Below was the estimates for today’s release. The highest estimate by “those in the know” was 235,000 job gains on the month.
We actually gained 339,000 jobs in the month, defying all expectations and assumptions.
If there was one thing where ALL economists and strategists have been wrong, it’s relating to the jobs market.
I wrote about why we may not have enough workers HERE.
This marks the 14th month in a row that new jobs data has come in stronger than expected.
How does this relate to history?
Going back to 2000 we have never seen this economic model so wrong.
As the caption shows below, something seems broken.
When we combine today’s employment data with the data we received on job openings (JOLTs), which came in better than expected, we have ourselves a very strong jobs market that is defying all logical expectations.
As JP Morgan stated:
“Labor market tightness is easing; though this was not reflected in the JOLTS release where there are 1.8 jobs per unemployed person vs. 1.0 – 1.2 is the range the reflects labor market balance per JP Morgan’s economist Feroli.”
But jobs are not the only thing that is making economists, strategists, and Saturday morning want-a-be market people like myself scratch our heads in disbelief.
Market Breadth
There is an old Wall Street saying that goes:
“Sell in May and Go Away.” -
- Everyone on Wall Street since 1920
As you can see below, this has worked for nearly everything except technology and the NASDAQ (index where technology stocks are usually traded).
In fact, when we look at the breakdown of returns this year, the top 20 stocks account for 94% of the total index return.
As you can see below, this trend just continued in May.
It is clearly a market of haves versus a whole bunch of have-nots.
All the “haves” are tied closely to Artificial Intelligence.
The launch of Chat GPT single-handedly saved us from another ugly year in stocks so far.
I wrote about Artificial Intelligence and the launch of Chat GPT HERE…
Here is another snapshot of the same data for the 500 stocks that make up the S&P 500.
The box size represents the size of the company in the index.
You can clearly see that the biggest companies have moved the most while everything else is flat to negative on the year.
We have not seen a differential like this since the technology bubble hay day of 1999-2000.
Every time market “Breathe” has been this weak (breath is the number of stocks beating the index), it has usually ended in tears.
To be clear – These trends are not normal.
Apple is now bigger than the 2,000 companies combined that make up the Russell 2000 small-cap index.
The top 1,000 growth stocks that make up the Russell 1,000 growth index are now breaking the Investment Act of 1940 rule on diversification.
By this rule, this index, that owns 1,000 stocks, is no longer an index but a concentrated portfolio.
The only other time this happened was in 1999-2000. Today we are blowing those highs out of the water.
What does this all mean?
There are only two ways this gets fixed.
One is that the big names that have done so well start to stall while all the other names in the market catch up
OR
the mega caps roll over and join all the other stocks in down and out of the land.
As for us, we continue to be in the half-empty camp, holding underweight to most risk assets besides high-yield bonds and commodities.
So far we have been wrong.
But when we look at the MANY models, like the one below, unless things are truly broken, we are in the last push higher before things start to get ugly.
So while we have had a good run by only a handful of stocks,
We are entering the worst part of the season to own stocks…..
We still favor cash as it just might be the cheapest thing to own in the market today.
Final Thoughts
Maybe all our models are wrong. Maybe COVID changed everything. Just like the jobs model, maybe our economic models that predict no longer work.
Or maybe things are just taking a bit longer than expected to play out.
I am not sure.
As for now, we are sticking to the cautious optimist side of things. Stay in the bunker until the all-clear has been sounded.
Thank you…
Have a wonderful weekend!!!