We saw some numbers on Friday. You get the kind of girl looks pretty
strong when it comes to jobs. How are the markets reacting to all this
information? It was a strange employment report.
Right. So it didn't coincide with necessarily
some of the other data that were looking bad, looking at such as NFIB hiring
intentions, the home base data. They would have told you that the labor
market would have been a lot weaker than the number that we had printed today.
But the good news is that what the equity market held on to is the gentle
decline in average hourly earnings. And that is good news on the inflation
side because you had very sticky inflation.
It's been coming down, but coming down probably slower than what people
expected. But to see the easing in the wage data
is a very good positive development. So, Erin, it raises necessarily the
question, what is the Fed going to do? Did the Fed say, boy, that's a lot a lot
of jobs are for we're going to have to raise again or can they pause or skip or
whatever they're calling it these days? The way they've been telegraphing
it certainly throws a wrench, certainly into how the Fed's thinking about the
evolution of the economy. And, you know, just earlier this week,
there were comments on the tape from various Fed governors, Powell included,
that were hinting at a potential pause at the upcoming FOMC meeting.
And certainly the timing of this release is inconvenient.
That said, you know, I wouldn't get too hung up on whether or not the Fed hikes
one additional time or not. You'll most likely they will pause at
this upcoming meeting, but do a hawkish pause.
Meaning, you know, they'll talk about the potential for further rate hikes
down the line if the data doesn't evolve the way that they're hoping it will.
But but I think what is important to keep in mind, at least from an investor
perspective, is whether or not they want additional time or not.
It really doesn't matter in the grand scheme of things.
The lagged effects of monetary policy is really what's going to matter.
The significant amount of tightening that happened last year is still needs
to work its way through the system and still will continue to tighten financial
conditions for the market and for the economy overall.
And that's the bigger picture of what's going on right now and what's ultimately
going to, you know, potentially affect the economy and lead to a further
slowdown from here. Barbara, with her off line with his lag
and the effects from monetary policy, how long a lag should we expect?
Because, boy, doesn't seem he's showing up very profoundly so far.
So it tends to be about, you know, when the Federal Reserve started hiking
interest rates, it was about 20. About 14 months ago, there tends to be a
lag of about 24 months between when the Fed starts hiking and when you start to
see a dramatic slowdown in inflation, that means we should have at least the
rest of this year into the first quarter of 24 before you start to see a
significant slowdown in inflation. Look, when you look at things like the
sticky price CPI or the underlying inflation gauge, they were at between 6
and 7 percent just six months ago. They're down now to about three and a
half to four and a half percent, well above the Fed's target.
But they're going in the right direction in order to get down to the 2 percent on
inflation, which is the Fed's target. You likely need to see a little bit more
time go by. Think about this, David.
The real issue is that the Fed hikes the 75 basis points that they did over the
course of three or four meetings last year.
They happened in the third and fourth quarters of last year.
You need at least 12 months for that to start to be felt by the economy and
start to see the slowdown you're seeing in some of the data change indexes.
You're starting to see some slowing. Certainly not indicative of the labor
market this morning on that report. But I would say that data can change and
can change relatively quickly. So I would think that you've got more
slowing coming ahead of you, even if the Fed did nothing going forward.
Aaron, retailer data changing quickly. I'm going to make a charm shift here
over to a I in tech where we've seen a big change quickly and that how much of
this is a tale of two very different equity markets, one of which is a
relatively narrow tech, big tech driven by and the rest of the market going a
different direction? I think you're exactly right.
I mean, the market breadth or the leadership has been incredibly narrow
for the S&P 500 this year. In fact, if you look at just the equal
weighted S&P 500, it's actually down on the year yet.
Tech has had a stellar performance. A lot of that is off a very weak
performance last year. But certainly a A.I.
and automation has gotten the markets excited about future growth prospects
for the tech sector. And this is another avenue of growth.
Keep in mind, even for an a video, which is one of the leading semiconductor
manufacturers and design designers, rather, and, you know, certainly has a
leadership role with respect to A.I. It's incredibly small percentage of
current sales. And so really what you're betting on
within the tech sector right now is future growth.
This is secular growth. Or the tech sector.
Not something that's really going to turn up materially or in earnings over
the next several quarters. And so I think that the market has
gotten excited about this theme, but it's probably a little bit ahead of
itself in terms of price action, just given the fact it's not going to
materialize in earnings anytime soon. You know, that said, I think that the
market this year came in looking for opportunities to buy to bottom pick
underperformers last year. And you've seen it with the tech sector.
You've seen it with the retailers. You've seen it, you know, sort of, you
know, across the board. But but these are really more
idiosyncratic rather than, you know, the market breath overall, which has been
narrow. And so that to me is is telling me that,
you know, potentially the market's getting a little bit tired and
potentially we may be in for tougher days ahead as leadership starts to
narrow. That tends to not be the greatest
investor for the average. The greatest environment, rather, for
the average investor.