The Bureau of Labor Statistics (BLS) Job’s Report that estimates new hires showed that there were 164,000 new hires in the month of July. However, the prior two months’ reports were adjusted down, cutting 41,000 jobs from the months of May and June. With this offset, the total new hires came in below what the market had anticipated. The reality is that for as hot as the labor market is, this is not a great report for the month of July. The trend of new hires is clearly heading down, which supports my belief that we will see a recession at some point in 2020. Keep in mind that in the past, 100% of the times that the Unemployment Rate hit a cycle low, it was immediately followed by a sharp spike higher. In other words, when economic strength is at its best, this is the time to worry. I believe now is the time to be deeply concerned and not get caught up in the strength of today. Investors never go broke by selling too soon.
The US stock market is again falling in early morning trading, as it makes its way down, blasting through its 25- and 50-day moving averages since the Fed rate cut. The saving grace may be the 100-day moving average, which has proven to be a strong support for the stock market. I expect stocks to hold at this level, at least for now. If I am right, we will soon see stocks stabilize. If this doesn’t in fact happen, there is a long way to go before hitting the 200-day moving average. With China stating they will retaliate against yesterday’s tariff announcement from President Trump, this could give stocks the weakness that will drive prices down to the 200 DMA level.
Mortgage bonds have made a convincing break above the trading channel that they have been trapped in for weeks. As expected, rates have improved. I believe we still have room for rates to fall. If you choose to float, do so knowing that movement never happens in a straight line. Be prepared to lock should the volatility concern you.