Weekly Chart Review

Labor Week (Day)

Let me start by thanking everyone for all the feedback I received regarding last week’s “chart blast”. The overwhelming response was that it needs to be a regular occurrence for this newsletter.

With that said, I will begin providing the charts every month and if there are additional asset classes (tickers) you would like to see included, please do not hesitate to let me know by leaving a comment or replying to this email with your thoughts.

At the end of the day, this newsletter is for you, the reader, so if I can do things to create additional value for you or your team, please do not hesitate to let me know!

Labor Week (Day)

Given the Labor Day holiday, this will be a shorter post than usual.

I want to share a few charts I came across over the last week that I thought were interesting.

This Friday are the all-important Non-Farm Payrolls and Unemployment Rate reports. Just before that, on Thursday, we will receive the weekly initial jobless claims figures.

The following two charts come from Francois Trahan, whose work I greatly admire, and speak to current labor market conditions and where they may be heading.

As a general rule of thumb, changes (or trends) in initial claims tend to foreshadow the direction (or trend) of the unemployment report and by extension, the direction (or trend) of S&P 500 earnings.

A softening labor market tends to be a precursor to Fed rate cuts. I’ve said in this newsletter over the previous weeks that I believe the Fed will cut rates on September 18th. Things can obviously change between now and then but I believe J. Powell’s speech at Jackson Hole signaled his intentions to cut at the next meeting (September 18th).

Now for the “Are rate cuts good or bad?” question (Note: for more on this topic, see my piece from a few weeks ago). As with most things, the answer is: “It depends”.

The following chart would suggest it all comes down to whether or not we have a recession within the next 12 months.

I think most readers will know that I’m in the camp that we will have a recession begin at some point over the next 12 months.

Now for the question of “What assets perform the best once the Fed starts cutting?” Here’s a great chart from Nomura that answers this question.