Things You Need to Know
- Challenger Job Cuts – Amplify the negatives.
- Add up all the other negatives and BOOM!
- The December rate cut is right back on the table.
- Bonds up, Oil flat, Gold erratic all while the VIX rises.
- Try the Linguine Arrabiata
OH SNAP! Carole King – Tapestry 1971… ‘I feel the earth move under my feet, I feel the sky tumblin’ down, I feel my heart start to tremblin’ whenever you’re around……OOH Baby…….you know the rest and if you don’t – here you go –
And just like that — one negative headline hit the tape, and it went RISK OFF. The algo’s didn’t even blink, tripping over each other to try to get out the door. They immediately began scanning for anything else negative…and they found plenty.
The Challenger Job Cuts report hit at 7:30 and it wasn’t pretty….it showed a +175% y/y increase in announced job cuts and that alone puts the market on edge.
But – before you go lighting you hair on fire – there is a data point that got lost in the headline….Yes, there were 153,074 ANNOUNCED job cuts – but there were also 283,138 PLANNED job hires – now, to be sure – the cuts are being driven by cost cutting, AI adoption and restructuring in both tech and manufacturing while the planned hires are mostly seasonal and lower wage retail and logistics opportunities – but the headline only ran with the cuts – making it MORE dramatic and more NEGATIVE.
But wait — then toss in:
The gov’t shutdown drama (negative)
Airline flight cancellations are stacking up, beginning today (negative — and expected to get worse)
A blackout in macroeconomic data because of the shutdown (more negative)
And the Supreme Court tariff case has clear implications for executive authority & trade policy (potentially negative)
…and suddenly you’ve got yourself the perfect recipe for Linguine Arrabiata (angry Linguine – which sets the tone for the markets).
At the end of the day the Dow lost 400 pts or 0.8%, the S&P’s gave up 76 or 1.1%, the Nasdaq lost 445 pts or 1.9%, the Russell gave up 45 pts or 1.9%, the Transports lost 95 pts or 0.6%, the Equal Weight S&P gave back 56 pts or 0.75% while the Mag 7 took it on the chin losing 690 pts or 2%.
Yes, the layoff story matters – it can no longer be considered just background noise — this is now flashing yellow, and some are wondering how long before it flashes red.
Where were the cuts? Warehousing / Logistics 47,878, Technology 33,281 were the two biggest and what does it mean? Well, it means Automation, AI and retail cost pressure, plus supply chain realignment in the warehousing space and it means that the growth sectors (TECH) are tightening. This is not your classic recession layoff pattern. This is a strategic workforce reshuffling – AI replacing labor in real time, companies pushing efficiency over expansion and skill mismatches slowing rehiring – this is structural — not cyclical.
So why does this matter for markets? The labor market’s cushion is getting thinner. And a thinner labor cushion means – Slower consumer spending, more pressure on consumer credit, higher sensitivity to tight financial conditions, and earnings multiple expansion get harder to justify.
For Wall Street this means that if the labor market begins showing real cracks, the multiple expansion story for growth stocks becomes a lot more vulnerable (see Mag 7). In short: good earnings alone won’t carry the market if investor confidence in the labor market wanes.
Meanwhile, the Fed now has cover to cut rates in December. In fact, Fed Fund Futures are now pricing in a 60% chance of a cut (up from 50% two days ago).
And yes — you say the market loves lower rates, so why the sell off? Because it realizes why rates are being cut.
If we’re cutting because the economy is re-accelerating, great but if we’re cutting because the economy is slowing, that’s a different dish entirely – thus the Arrabiata.
Bonds got bought yesterday on the idea that investors are bracing for lower rates ahead — so they’re locking in today’s higher yields while they can. The Challenger Job Cuts report highlighted a sharp jump in October layoffs (accentuating the negatives), reminding everyone that the Fed is likely to cut rates in December.
With the government shutdown further delaying key macro data points, investors, traders, and the algos have little fresh information to work with — so they defaulted to the “slowing-economy” narrative, (again, accentuating the negatives) and making Treasuries more attractive as a safe-yield play. Think of it as: “Lock in the yield now before it’s gone.
The TLT rose 0.9%, the TLH gained 0.8%, and the 10-year yield fell to 4.08%. But that tone shifted again overnight — this morning, the 10-year is back up around 4.10%. 30-year mortgage rates remain elevated at roughly 6.2% for borrowers with a 720+ FICO score.
And while bonds rallied, gold was all over the place — trading as high as $4,020 before settling at $3,977 by day’s end. This morning, it’s rebounding — up $32 to around $4,010.
Short-term trendline support continues to inch higher, now near $3,880 (up from $3,855 on Monday). The move higher this morning is being driven by two main factors:
1. China continues to add to its reserves, a pattern that’s been consistent all year as they diversify away from the dollar.
2. The trader crowd is once again betting that a December rate cut is back on the table — front and center — after JJ tried to throw cold water on that idea post the FOMC.
Oil continues to trade tight…..This morning WTI is trading at $60.25 – nothing to see here.
The VIX – Recall how I said that while it WAS settling down – we know how quick that can change. And it changed yesterday after the report…. the VIX surged by 8.4% on the back of that headline….and this morning it is up another 3.3% as the nervousness remains a bit elevated. Remember – it is Friday, the weekend is coming, futures are weak, so it would not surprise me to see us trade lower.
This morning US futures are churning lower – once again on VALUATION CONCERNS – see how this keeps poking you? Dow down 150, S&P’s down 22, Nasdaq is down 132 and the Russell is down 3.
European markets are lower as well…. All down about 0.5% across the board. Yesterday, the BoE left rates unchanged but did indicate that a cut is coming… Analysts/economists are now suggesting that Santa Claus will leave that under the tree.
The S&P closed at 6,720 – down 76 pts after testing as low as 6707…Just 42 pts away from the short term trendline. The weakness this morning – pointing to a test of that level. Here is the KEY – if we test and hold the algo’s will remain in neutral, if we fail, then the algo’s will go into overdrive – spraying the markets with SELL orders as a technical support level has been broken. The question – will the buyers defend the position, or will they step aside to watch the sellers panic?
Recall that yesterday I told you that I wait 24 to 48 hrs. after a reaction like Tuesday to see how it settles down. And now after yesterday’s reaction (which was 48 hrs. later), I will once again sit on the sidelines for another 24/48 hours again to see what happens when we test the trendline. I love buying stuff ‘on sale’.
Remember – There is no need to do ‘something’ every day. If you were sitting on cash, you’re good – you have ammunition. Don’t be so quick to deploy it – patience is a virtue and in nervous times like this – cash is king.
Call me at 561-931-0190 – to give you a no obligation review of your portfolio. It’s all about risk management – let me help you assess the risk of the portfolio vs. the risk you are willing to take.
Countdown
38 days into the Gov’t shutdown – you can cut the air with a knife.
22 days until Official Black Friday
48 days until Christmas
54 days until the ball drops in Times Square
Take good care,
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
Disclosure: The content provided in this material is designed for educational and informational purposes only, and it is important to note that it does not constitute personalized recommendations. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kenny Polcari or SlateStone Wealth.
The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions, which may not necessarily align with our firm’s standpoint.
While considerable effort has been invested to ensure the accuracy and dependability of the information presented, we must clarify that we cannot guarantee the accuracy of third-party information. Our usual sources for third-party data include channels such as Bloomberg.
Try the Linguine Arrabiata
So, in keeping with the theme today – how about an Arrabiata Sauce – this is a southern Italian tomato sauce that gets its kick from the crushed red pepper – in fact – Arrabiata means Angry….you can use this sauce over pasta or even meats – today let’s eat pasta.
You will need: 1 lb. of linguine, olive oil, onion, garlic, red wine, crushed red pepper (or chili peppers if you want hot, hot, hot), lemon juice, oregano, s&p, crushed tomatoes, tomato paste and chopped parsley….
Bring a pot of salted water to a rolling boil –
In a large pot (or deep sauté pan) on med-hi – heat up olive oil and garlic…. sauté a bit – but do not burn – 3 mins or so…. Now add sliced onion and sauté until soft – like 5 mins more.
Next – add 1/2 cup of red wine, fresh squeezed lemon juice (about 1 tblspn), oregano, bit of tomato paste, and a 28 oz can of kitchen ready crushed tomatoes (not in puree – just crushed tomatoes), crushed red pepper (or crushed chili pepper if you prefer) – bring to a boil and then reduce to simmer and cook for 15/20 mins….
Add the linguine to the boiling water and cook for 8 mins or until aldente – strain – reserving a mugful of the pasta water. Return pasta to pot and add back about 1/4 cup of the pasta water to re-moisten.
Stir….Now add pasta directly into the sauté pan with the sauce – toss well – add a handful or two of grated parmegiana cheese and serve immediately in warmed bowls.
Enjoy with a nice bottle of Brunello di Montalcino. Always have extra cheese on the table for your guests.
Buon Appetito!