Why You Need to Keep an Eye on Employment Numbers

TL;DR

Don't wait until January to prepare for the new year. Cyclical areas of the market may be vulnerable to downside, while the tech bubble and potential recession pose significant risks.

Transcript

the whole theme of of this is don't wait till January right and so as people are closing in on the end of the year and whether you've had a good year a great year or a miserable year it's a good point to just sort of reflect on what's happened and really prepare yourself for next year you know I think waiting until January you're already behind the... Read More

Key Insights

• ❤️‍🩹 Reflecting on the year-end is crucial for effective preparation in the next year.
• 😀 Cyclical areas of the market may face downside risks due to the tech bubble and potential recession.
• 🫰 Indicators such as the housing sector, new orders index, profit margins, and layoffs provide signals of potential risks.
• 🪛 Differentiating between growth-driven and inflation-driven rise in rates is important to understand the impact on cyclicals.
• 🥺 Softening inflation could lead to a bounce in bonds and a potential retreat in yields.
• 💦 Employment figures are the next shoe to drop and may be impacted by economic factors such as new orders and housing market performance.
• 🍰 The Fed's pivot and its timing can influence the risk dynamics of short and long bonds.

Questions & Answers

Q: How can reflecting on the year-end help prepare for the next year?

Reflecting on the year-end allows individuals to assess what has happened and make necessary adjustments to prepare for the upcoming year, ensuring they are not behind in capitalizing on opportunities.

Q: Why are cyclical areas of the market considered vulnerable in 2023?

The tech bubble and potential layoffs in the tech sector may translate into a recession, leading to a downturn in cyclical areas. This pattern was observed during the 2000-2001 period.

Q: What are the potential risks indicated by various factors?

The housing sector shows signs of contraction, with projections of sales being down in Q1. Additionally, orders in several industries have been contracting, while profit margins have been compressed. Layoffs in the tech sector also indicate potential risks for employment figures.

Q: How might the bond market be impacted if inflation starts softening?

If inflation starts softening, there could be a retreat in yields, leading to a potential bounce in bonds. However, the impact on cyclicals, especially banks, depends on whether the rise in rates was driven by growth or inflation.

Summary & Key Takeaways

• Reflect on the year-end, regardless of the outcomes experienced, to prepare for the next year before institutions put capital to work in January.

• Cyclical areas of the market could be vulnerable to downside in 2023, particularly if the tech bubble and layoffs in the tech sector lead to a recession.

• Signs of potential risks include housing market contraction, slowing orders, compressed profit margins, and potential layoff impact on employment figures.