- Scott Poore, AIF, AWMA, APMA
Market Back To Fundamentals With End to Stimulus In Sight
Jobs Report disappoints, but jobless claims points to a better report next month.
Stagflation or just high inflation?
COVID cases and hospitalizations continue to decline.
Now that the market is coming to the realization that Tapering will begin soon and interest rates are on the rise, fundamentals seem to matter once again. The prospect of government spending being stuck in Congress is also placing more emphasis on fundamentals - such as jobs, inflation, and economic growth. Much is being made of Stagflation talk, but we think that is not a primary concern just yet. Rather, poor policy decisions have put us in a bit of a quandry when it comes to available goods and workers.
Last week, the economic data was positive overall. The mood was upbeat in markets until Friday's disappointing Jobs Report. While the ADP report had looked very good earlier in the week, Friday's number came in well below expectations.
However, seasonal losses in the government sector (-123,000 jobs) made the disappointing number look worse on paper. It's likely September's report gets revised higher, as have the last 5 months' jobs reports. The unemployment rate overall, however, dropped again from 5.2% to 4.8%. Both Initial Claims and Continued Claims dropped, which is a good sign that people are slowly coming back into the workforce. This week's inflation numbers - CPI & PPI - will provide a critical look at inflation.
Stagflation is all the rage lately, instead of focusing on the bad policy decisions during the pandemic that has led to labor shortages and shipping delays. Should those two key areas normalize, we feel the stagflation talk should end. Stagflation exists when there is high unemployment, high inflation, coupled with low growth.
At current levels, GDP is 6.7%, Unemployment is 4.8%, and Inflation is 5.3%. GDP is well above historical norms, Unemployment is below historical norms. Only inflation is high. Stagflation is likely the talk as markets haven't seen higher inflation in more than 20 years.
COVID hospitalizations are down, positive cases are down, and things are loosening back up. The one caveat seems to be mandatory vaccinations. Regardless of how one feels about the vaccines, there are those, especially in key fields, that do not want to be forced to take the vaccine.
This is causing disruptions in several areas - hospitals & airlines, for example. Hospitals across the country are losing workers & staff over vaccine mandates. This is occurring just as the hospital system is seeing COVID ICU cases decline. Over the weekend, more than 1,000 flights were cancelled by Southwest airlines due to "weather and FAA guidelines." However, none of the other airlines seem to have experienced the same issues, as their flights were not wholesale cancelled. In reality, it appears that pilots and crews are opting out of mandatory vaccination and that is what caused the cancellations yesterday. If these disruptions spill over into other key sectors, there could be further labor shortages. Bad policies have consequences.