In this episode, we talk a lot about the job market, which is anything but hot, and its implications for the Fed, which is under pressure. All of the below tend to support President Trump’s criticism of Powell being “too late”: weakening job growth this summer (only +22k jobs in August, mostly in health care). likelihood of significant negative revisions this week. unemployment that would be over 5% if not for lower labor force participation. Although unemployment is not an issue (yet), the risk in the labor market is a dearth of new jobs, with the odds of finding a job if you lose on today only 45%, the lowest level in over 12 years. We believe that AI is having an outsized effect on job openings, especially at the entry level. All of these factors, along with a shift away from a focus on inflation by the Fed, support the market’s consensus view of a rate cut being on tap for next week, with two or three more likely to follow in quick succession. Historically, this has been a positive for equity markets if (and that is a big if) a recession can be avoided. the Fed has cut rates after an extended pause (like the one we are in now) eight times in the last forty years; four times we avoided a recession, and markets gained, on average, around 15%. the other four times, we entered a recession, with markets typically experiencing a 10-15% drawdown. Although there are some parallels between now and the late 1990s, valuations are not quite as stretched at the top, with the median P/E of the top 10 stocks around 31x versus a 41x multiple in 1999. However, investor allocation to equites is now at 55%, above its prior peak in 1999. We also discuss the reasons why, despite Fed rate cuts, the all important 10-year yield may not cooperate. Chief among these are the lagged impact of tariffs on prices and the relatively high (and growing) level of U.S. government debt. Will the U.S. be forced to suppress yields a la the bank of Japan in order to unlock the housing market, and is that what is causing tempers to flare between members of the administration? Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

Ver todos los episodios