Up Only Market Does that Thing Where It Says It’s Worried About the Economy and Trump
Photo by Public domain, via Wikimedia Commons
The Jobs Opening and Labor Turnover Survey (JOLTS) report surprised the market today, as it showed hiring activity at a decade low while increasing more than expected in December. This is not the total jobs report for the month, which will be published this Friday, but it is an important metric measuring demand for labor, and JOLTS portrays a cooling labor market. Back in August, the stock market fell hard off a colossally bad jobs report which activated the Sahm Rule that has a perfect record predicting recessions. The market didn’t crash today, but it sure did react negatively to the JOLTS report, as the future cash flow-dependent Nasdaq fell 1.8 percent while long-term Treasury yields rose about 1.4 percent, which tells the same story about the concern for the economy going into 2025.
The cooling jobs market has been an ongoing theme for a while, and while overall, economic authorities like the Federal Reserve believe the labor market is strong, it’s a fact that their interest rate hiking regime was explicitly directed at depressing wages and the jobs market. That they are now pivoting to interest rate cuts means they believe they have achieved that goal, confirmed by the jobs reports spanning the last several months.
But this JOLTS report surprised and moved the market, and one of the classic inflation indicators, the United States Ten-Year Treasury Note, produced one of those PTSD-inducing “not since 2007” headlines, as Bloomberg noted:
The US government’s monthly auction of 10-year notes drew the highest yield since 2007 after the latest economic data suggesting that the Federal Reserve is less likely to cut interest-rates again before mid-year.
The 30-year Treasury auction later this week is also expected to produce the highest yield since 2007. Inflation was not the problem in the 2008 crisis—widespread fraud and gluttonous excess was—but anything that unfolded in 2007 by definition contributed to that shitshow the following year. As a general rule, it’s not good seeing “not since the year before the largest economic crash in a generation” headlines in our current economic paradigm rattled by inflation and defined by uncertainty, just under five years removed from our last largest economic crash in a generation.
All the while we have the third-most expensive stock market in history driven by a narrative around a wildly overhyped technology made by over-valued companies like OpenAI, whose lying founder says they need one third of annual U.S. GDP in order to make his so-called world changing product actually world changing. If some big catalyst to harm the economy sprung up next year, it would be difficult to look at the current frothy conditions, with Bitcoin above $100k before today’s JOLTS report shocked some reality into the markets, and say the signs for a crash were not there.
$CVNA CEO (his father who is a convicted felon) says he can’t explain how the boosted profitability because it’ll take too long & be too complicated for idiot retail & your other viewers … then misdirected the conversation to avoid prison.
— FRR (@ForgeRiver) January 7, 2025
Speaking of potential catalysts that could harm the economy, the self-described “Tariff Man” is going to officially be president in a couple of weeks, and Trump is already saying that he may have to use “economic force” to make Canada the 51st state, reminding the market of the unpredictable threat he poses: his unpredictability. Traders have been making the Trump trade since at least the night Joe Biden’s brain fell out of his head on national TV, which is a trade betting on higher inflation and lower growth based on the predictable Trump threat: his policies.
If you add persistently high unemployment to the Trump trade, you get stagflation, a toxic cocktail that is the worst thing that can happen to an economy and was once thought impossible until the 1970s proved otherwise.
And the most reliable indicator of the market’s future inflation expectations over ten years just sold at a near eighteen-year high, all while the job market keeps giving mixed signals and making policymakers more cautious.
The market trading sideways like it did under Jimmy Carter’s inflationary administration might be best-case scenario in a world where the Trump trade winds up being prophetic. It’s an objective fact that the stock market is over-valued right now. Stock prices have much farther to fall relative to earnings than they did in the 1970s, and it’s fair to question how much of this supposedly strong economy that most people do not feel is dependent on the wealth effect created by inflated asset prices like stocks and housing making the rent too damn high.
Crises aren’t predictable, that’s what makes them crises, but the commonality they share is an event that exposes something which helps get the snowball rolling downhill. In 2008, it was Lehman Brothers making everyone realize that the complex securities that Wall Street had built on top of the shockingly lax lending standards of the American housing market weren’t worth the paper they were printed on, and everything quickly unraveled. I don’t even know if there is a catalyst out there now, but between the uncertain labor market, Trump’s tariffs, A.I. reaching its diminishing returns stage and crypto surging to near all-time highs as it flies the pirate flag of greed and excess, all while the “normal” market is driven to all-time highs by just seven companies, there are plenty of potential options to choose from.
Silicon Valley Bank could have been really bad if the government hadn’t rushed to guarantee their debts and plug the growing hole from spreading to other banks’ balance sheets, but that unfolded under people who weren’t actively trying to destroy the government. It’s one thing for Trump and his corrupt band of kleptocrats to keep the perpetual profits machine whirring no matter what, but as the 2008 crisis demonstrated, Republicans are not fond of bailouts, even in the moments the market most needs them, and capitalist markets need a lot of money to plug the holes they naturally create in their boom and bust cycles. This GOP Congress has built an entire personality around opposition to government spending, and if a crisis should emerge under Trump, it’s far from a guarantee that the government would help the markets, let alone provide the amount of help needed.
As always, none of this is financial advice, but this is at least twice now since the election that risk managers across Wall Street have flashed warning signals that there could be choppy economic waters ahead, all while the largest, most liquid market in the world began promising voters higher inflation the day after the election, and it has not stopped since.