Artificially High

Life at or near all-time highs... Inflation hedges are rising, too... Central-banker fightin' words... The truth about jobs numbers... The Fed's words may not match its actions...

Things looked a little different today...

On the surface, the major U.S. indexes were "mixed" again today... The benchmark S&P 500 and tech-heavy Nasdaq Composite Index were up slightly, the Dow Jones Industrial Average was nearly flat, and the Russell 2000 Index fell a little.

This hasn't been unusual in the past few months. In July, most mega-cap tech stocks started selling off while the "S&P 493" outperformed.

But below the surface of the headline numbers today, the picture was actually split, too. And that is a little different from the behavior we've seen lately.

Today, six of the 11 major S&P 500 sectors were marginally higher... the rest, not.

All in all, the market cooled after making new highs last week following the Federal Reserve's rate-cut "juice" hit.

Still, the equal-weight S&P 500 Index was up a touch, and the S&P 500 and Dow remain at all-time highs. The Nasdaq and Russell 2000 are also only roughly 5% and 10% from that mark, respectively.

Meanwhile, inflation hedges remain in favor...

And I (Corey McLaughlin) am talking about both physical and digital hedges.

Gold was up another few tenths of a percent today to a new all-time high above $2,620.

Since last Wednesday, bitcoin is up 5% to above $63,000 and is flirting with breaking through a key "resistance" level that our DailyWealth Trader editor Chris Igou wrote about last week.

However, longer-term bond yields were down slightly today after bouncing higher last week.

We'll keep watching... As we wrote last week, higher longer-term bond yields indicate maybe investors aren't buying the Fed's narrative that high(er) inflation is conquered. (They would be right... So long as fiat currency exists, inflation won't ever end.)

Our Greg Diamond wrote about this to his Ten Stock Trader subscribers this morning, and he discusses it in his free Diamond's Edge video down below. Greg also noted last week's moves in bond yields (rising after a rate cut). As he says, in part...

We're going to see sticky inflation, some good numbers, some bad numbers, but overall the bond market is signaling... inflation is actually going to be somewhat sticky going forward.

Moving on to a few notes about jobs data...

Specifically, I want to reflect on how the Fed is looking at these numbers.

We received this question from subscriber Dana G. on Thursday, which brings up a good point if you're interested in "Fed watching"...

Haven't seen Fed comments re: accuracy and subsequent months downward adjustments by [the Bureau of Labor Statistics]. These, for many months, have mostly significantly been reductions to reported numbers of new hires. I, for all of 2024, feel BLS is manipulating the [initially reported nonfarm payroll] number then figure the consumers will ignore AFTER numbers... all these months leading up to voting... Thus, true unemployment rate may be 4.4% and that reinforces going 50 basis points. Elephant in the room?...

Regarding the large wild animal in the room, I'll respond "yes and no."

I'll actually give Fed Chair Jerome Powell and the Fed credit on this subject...

In the past few months, Fed officials had made public comments alluding to the idea that the government's initial unemployment numbers are underreported relative to reality.

I think this was part of why a decent number of investors weren't surprised by a 50-basis-point cut last week.

Then, at his press conference on Wednesday, Powell did prominently and deliberately note the "revision" feature of the "data" in the first question he answered from reporters...

It's all 'artificially high'...

Asked about what made the Fed go with the 50-basis-point cut versus the 25-point cut also on the table, Powell mentioned the past two jobs reports, the two most recent inflations reports, and then...

We had the QCEW [Quarterly Census of Employment and Wages] report, which suggests that maybe – not maybe – but suggests that the payroll report numbers that we're getting may be artificially high and will be revised down.

"Not maybe" and "artificially high." In central banker land, those are fightin' words.

As we wrote in our August 21 edition, the alphabet-soup report to which Powell referred uses state unemployment-insurance tax records to update labor-market data, as opposed to survey data like the "nonfarm payrolls" report uses.

This year, this so-called "benchmark revision" update led the BLS to slash its reporting of nonfarm payrolls added in the 12-month period through March by 818,000.

Said another way, 30% of the 2.9 million jobs that were initially reported as being added during the same period... actually weren't.

So, yeah, the nonfarm payrolls numbers you see and hear on the first Friday of each month – and the unemployment rate – have been underestimated.

That's just a fact. The question now is if the Fed's rate cuts (or anything else in the economy) will slow the pace of unemployment down in the months ahead.

And, maybe as important, we'll see if inflation reignites.

Also, forget about those government jobs...

For those following this Fed parlor game, Powell also has importantly – and, ironically, given his employer – said that he cares more about private payrolls than the numbers of government jobs.

At Powell's post-meeting press conference in July, I thought this exchange was telling...

Edward Lawrence from Fox Business News asked...

Could the government jobs [hiring], as a sector... mask underlying weakness in the jobs report?

Powell's response...

The headline number of jobs has come down... but you look at the whole thing. And I think you do look at private demand extra carefully, to your point about government.

So, Powell doesn't have his head in the sand on unemployment data. That said, how the central bankers act is a different matter. They can still be "behind the curve" with their policy because of backward-looking data.

They appear cognizant of not doing that. "You can take this as a sign of our commitment not to get behind," Powell said of the central bank's rate cut last week. But history suggests this time usually isn't different regarding the Fed.

So, putting this all together, we'll be paying more attention to more "real time" indicators of the jobs market and the economy to stay ahead of the Fed, stay current on trends, and help us think about what surprises could be in store for the market next.

New 52-week highs (as of 9/20/24): Alamos Gold (AGI), American Express (AXP), Alpha Architect 1-3 Month Box Fund (BOXX), Constellation Energy (CEG), iShares MSCI South Africa Fund (EZA), Fair Isaac (FICO), Comfort Systems USA (FIX), Flutter Entertainment (FLUT), VanEck Gold Miners Fund (GDX), SPDR Gold Shares (GLD), W.W. Grainger (GWW), Houlihan Lokey (HLI), iShares iBonds December 2025 Term Treasury Fund (IBTF), iShares U.S. Aerospace & Defense Fund (ITA), Nuveen Preferred & Income Opportunities Fund (JPC), Kellanova (K), Lumentum (LITE), Meta Platforms (META), Newmont (NEM), Annaly Capital Management (NLY), Northrop Grumman (NOC), Sprott Physical Gold Trust (PHYS), Planet Fitness (PLNT), Royal Gold (RGLD), iShares 1-3 Year Treasury Bond Fund (SHY), Spotify Technology (SPOT), TransDigm (TDG), Texas Pacific Land (TPL), Trane Technologies (TT), ProShares Ultra Gold (UGL), Vistra (VST), Vanguard Short-Term Inflation-Protected Securities (VTIP), Wheaton Precious Metals (WPM), Utilities Select Sector SPDR Fund (XLU), and Zebra Technologies (ZBRA).

"Hello, I recently signed up for The Stansberry Digest and I appreciate the sarcasm and occasional shade, it's quite refreshing from the certain monotone newsletters. Because it seems more honest while being very informative, especially for someone new to the finance world.

"Thank you to the writers and researchers involved in The Stansberry Digest." – Subscriber Simran K.

Corey McLaughlin comment: Simran, thanks for writing in. We hope you stick around, and don't be a stranger.

Selfishly, you made my Digest year with your feedback. We try to deliver the newsletter in an informative and entertaining way with the right amount of "occasional shade," as you put it. (Sometimes, we have more to say, but our editors rightfully trim when it's too much.)

You may rightfully call it sarcasm as well... But our real aim is to deliver the most helpful insight we can and the truth as we see it. It's just that this world has enough nonsense that simply stating the facts often can sound like "shade" as a consequence. (Either that, or we've really been beaten down by inflation over the years.)

In any case, glad the balance hits right for you.

All the best,

Corey McLaughlin
Baltimore, Maryland
September 23, 2024