Why Louis Navellier is asking into query current financial information … how the current run-up in charges could possibly be defective … why this Friday’s jobs report is so essential
The market is watching the Fed…
The Fed is watching the info…
The information are reflecting inflation and the resilience of the U.S. financial system…
Or are they?
What if current financial reviews don’t give us an trustworthy evaluation of right now’s state of affairs? Getting that information mistaken could make a giant distinction in your portfolio.
To start unpacking this, let’s flip to legendary investor, Louis Navellier and his Weekly Market Commentary:
This week we are going to study if the Federal authorities lied to us.
I’m not referring to Federal Reserve Chairman Jerome Powell’s testimony earlier than the Senate on Tuesday or Home on Wednesday.
No as an alternative, I’m referring to Friday’s February payroll report.
Particularly, I need to see if the January payroll report is revised considerably decrease after being artificially boosted by large seasonal changes.
To ensure we’re all on the identical web page, about one month in the past, the January nonfarm payroll employment quantity got here in at a jaw-dropping 517,000
This blew away the estimate of 187,000.
This report panicked inventory market bulls as a result of it instructed the Fed’s charge hikes haven’t put a dent within the red-hot U.S. jobs market, which might imply upward stress on inflation and doubtless continued rate of interest hikes.
However what if the payroll information quantity was artificially excessive?
To elucidate how and why that could possibly be, Louis factors towards an article from The Wall Avenue Journal final week that mentioned the thriller of “seasonal changes.”
In brief, the federal government adjusts the mathematics of its jobs-related calculations to attempt to clean out seasonal bumps. However not everybody thinks that the way in which the federal government does this, or the info it contains, is offering an trustworthy evaluation of the financial system.
From the WSJ:
Did the U.S. add half 1,000,000 jobs in January or did it lose 2.5 million?
The federal government stated each occurred—however traders and coverage makers cared in regards to the seasonally adjusted improve of 517,000…
All year long, shoppers and companies alter their habits, shopping for coats within the winter and sizzling canine in the summertime, and stocking folders for back-to-school season. That modifications costs and when hiring and layoffs occur.
Authorities statistical businesses use advanced fashions developed over many years to account for these patterns to make month-to-month comparisons doable.
That arcane course of obtained extra consideration just lately as some economists questioned if robust seasonally adjusted hiring, value and spending information to begin the 12 months precisely replicate what’s happening within the financial system.
Again to Louis:
The WSJ identified that since “corporations let go of vacation staff” that January has substantial seasonal changes.
This WSJ article is successfully setting the stage for a doubtlessly large payroll revision on Friday.
If the adjusted payroll quantity is revised considerably decrease, it’ll ease investor issues about labor market energy, which might take away stress on the Fed to proceed a hawkish strategy to charge hikes.
However the payroll report isn’t the one factor prompting skepticism from Louis
There’s additionally the January retail gross sales report.
As a refresher, right here was CNBC’s headline about January’s retail gross sales report nearly a month in the past:
“Retail gross sales soar 3% in January, smashing expectations regardless of inflation improve”
However once more, what if the info weren’t precisely “smashing”?
Again to Louis:
The opposite huge financial report that will have additionally been exaggerated by January seasonal changes is the retail gross sales report subsequent week on March fifteenth.
And right here’s Axios with extra particulars on why the numbers could possibly be off:
[The January retail sales report showing 3% growth] truly confirmed retailers had $121 billion much less in January gross sales than they did in December — a 16% drop.
The distinction is a results of the seasonal adjustment course of that’s utilized to most main information — and proper now, it might be sending deceptive alerts about how the financial system is doing at first of 2023.
To grasp why this issues to your portfolio, let’s comply with the breadcrumbs, which level us towards rates of interest
Right here’s Louis:
The truth that these two blowout financial reviews might have been grossly distorted by January seasonal changes implies that rates of interest might need surged for bogus financial causes.
To see what this appears to be like like, beneath, we look at the S&P’s efficiency (in black) in contrast with the 2-year Treasury yield (in inexperienced) during the last three months.
Discover how the 2-year yield fell in January. However on the finish of the primary week in February, it exploded increased following the roles report launch. And within the subsequent days, the speed continued to climb whereas the S&P proceeded to drop.
Right here’s how this appears to be like…
Supply: StockCharts.com
As to the direct impression in your portfolio, we’ve coated this many occasions right here within the Digest.
In brief, increased rates of interest elevate the “low cost charge” that’s used when calculating the market worth of a inventory. All else equal, the upper the low cost charge, the decrease the current worth of a inventory.
Put all of it collectively and it makes this Friday’s labor report much more essential
So, what’s anticipated from the report?
Right here’s Bloomberg:
US job development in all probability moderated final month after a blistering January tempo, whereas the unemployment charge possible held at a 53-year low, illustrating a labor market that’s proved principally impervious to the Federal Reserve’s large interest-rate hikes.
In keeping with Bloomberg’s survey of economists, the median forecast for the February payroll quantity is 215,000.
For context, keep in mind, the January forecast was 187,000 however the quantity got here in at 517,000.
Friday’s payroll information is much more essential as a result of it will likely be the final jobs report the Fed sees earlier than its subsequent FOMC assembly on March 21-22. Fed members can be deciding whether or not to hike charges by 25 or 50 foundation factors.
In current weeks, Wall Avenue bulls have been all-but-certain the hike can be solely 25 foundation factors. However now, within the wake of Federal Reserve Chairman Jerome Powell’s hawkish commentary this week, the percentages that the Fed hikes 50 foundation factors have exploded to 79.4%.
For perspective, one month in the past, these odds clocked in at simply 9.2%.
The nice factor for the bulls is that there’s now loads of room for dovish surprises
For instance, if the Fed solely hikes 25 foundation factors, Wall Avenue can be pleasantly shocked. The market will possible leap increased.
Or, if Friday brings a softer headline quantity coupled with a significant downward revision of January’s quantity, it will be doubly-bullish…
First, it will indicate short-term charges have to ease since their February surge can be proven to have been primarily based on “bogus financial causes,” as Louis put it.
Second, it will counsel that the Fed’s charge hikes thus far are, actually, having the specified impact. And that may take away the Fed’s toes from the hearth as to the dimensions of the March charge hike.
No matter what occurs Friday, don’t get too comfy. Subsequent week we get the newest CPI and PPI reviews on Tuesday and Wednesday.
Tons on the road. We’ll hold you up to date.
Have a superb night,
Jeff Remsburg
