JOLTing the Market
In this issue of the Peel:
Market Snapshot
Happy Thursday, apes.
Wine Wednesday knocked you out yesterday? Good, that makes two of us, and it sounds like we should hang out sometime.
And, I might suggest we bring someone else to our little get-together too because when markets are as nice as yesterday, I for sure wanna hang out with Mr. Market. Equity markets painted the town green yesterday, as long as you weren’t in the energy sector, on a retreating 10-year yield and falling oil prices. Megacap outperformance continues to reign, leading the Nasdaq to win the day with a 1.35% gain.
However, in stepping on our own material above, yields did decline for the day. It seemed that Wednesday morning’s ADP report confirmed the anomalous nature of the numbers from the JOLTS report on Tuesday, easing markets and mortgage rates (at least, buyers hope so).
Let’s get into it.
Crack the Code to PE Interviews
Are you dreaming of the buyside? Do you want to learn how to ace not just the paper LBOs but the full-blown LBO modeling tests and PE cases? If so, you need the WSO Private Equity Interview Course, the ultimate resource for mastering all the skills and concepts you need to get hired in PE.
It’s not just another online course that teaches you LBOs. It’s a comprehensive and practical guide that covers every angle of the PE interview process, from networking and resume tips, to deal experience and behavioral questions, to paper LBOs and full-on modeling tests.
It also gives you access to over 2,000 real-life interview questions from 200+ PE funds, as well as 12-month access to the WSO Video Library and Company Database.
With the WSO PE Interview Course, you’ll be able to:
Don’t miss this opportunity to invest in your career and achieve your PE goals.
Banana Bits
Macro Monkey Say
The Previews
Aspiring GOAT country singer Zach Bryan once (very recently) said that “... fear and Friday’s have an awful lot in common.” And despite his poor punctuation in randomly making “Fridays” possessive, he was right on the money.
Especially this Friday. One of the best things about starting any new month is that the first Friday is always a macro holiday as that’s when the Bureau of Labor Statistics (BLS) released the non-farm payroll—aka, jobs—report.
We’ll have to wait for tomorrow to get the full update, but naturally, in the days leading up to such an exciting spectacle, we have some previews to discuss.
On Tuesday, we got the latest Job Openings and Labor Turnover Survey (JOLTS) numbers. Sorry for this in advance, but it was obvious that this report really jolted the market (I’ll be here all week).
The point is, Zach was right—fear in markets this week does have a lot to do with what’s coming on Friday. And the chart below shows us exactly why:
"... it was obvious that this report really jolted the market ..."
That tiny little uptick from just last month largely caused the mini-freakout seen in equity markets on Tuesday. Basically, the number of job openings spiked unexpectedly, both in direction and magnitude, suggesting that the Federal Reserve isn’t accomplishing its goal of destroying labor demand.
Reducing labor demand, in theory and throughout history, puts downward pressure on wages, which leads to lower inflation. Frequently, CPI and PCE reports put the spotlight on energy, food, and shelter prices… but the Fed doesn’t have a farming or pipeline arm, so those are a little outside their reach.
Labor demand, however, is exactly what the FOMC has been seeking to control to stymie inflation this time around. But to many observers, the data proved little more than an anomaly. And Wednesday’s ADP report helped out with that.
"... hiring demand has a long way to go to get back to the “normalcy” of 2019 levels."
Yesterday, giant payroll and HR firm ADP released its own assessment of the U.S. labor market. With an increase of just 89,000 positions added to ranks from sea to shining sea, that minuscule jump cooled investors' nerves.
However, hiring demand has a long way to go to get back to the “normalcy” of 2019 levels. Not as many Americans are demanding jobs, apparently.
The lack of balance between the two could mean that those accepting new positions are getting some enviable raises, but as we discussed earlier this week, job switchers are reaching post-pandemic era lows. Guess nobody likes making money anymore.
Either way, less than a week after this jobs report drops, the September CPI will light up your terminal for a day or two… but it’s anyone’s guess as to in which direction. Place your bets now.
What's Ripe
Tesla (TSLA) ↑ 5.93% ↑
Palantir (PLTR) ↑ 5.57% ↑
What's Rotten
Fisker (FSR) ↓ 6.78% ↓
Crude Oil (Brent, WTI)
Data Peel
Thought Banana
WTF Washington?
Not you, George. Today, we’re talking about the city that took on your namesake.
And in that city, Washington DC, something that has never happened in the 247-year history of the United States just went down. So, let’s check it out.
California Rep. Kevin McCarthy, the (former) Speaker of the House of Representatives, has been ousted from his position as the leader of his Congressional chamber. Never before in American history has this been done, and now, no one seems happy about it.
First, credit where credit is due. Prior to his ousting, the Senate and House had been working on a stopgap funding bill to avoid a shutdown of the U.S. government that would have gone into effect about a week ago.
In order to pass that bill, McCarthy had to reach out to the other side of the aisle and, in response, members of his own Republican party asserted that this was grounds for dismissal and had him removed.
"... members of his own Republican party ... had him removed."
And it wasn’t very hard to do. Getting Democrats to join the dozen or so Republicans in a vote to oust McCarthy was a giveaway to them, allowing them the chance to have a member of their own party take the seat.
But for now, Rep Patrick McHenry of North Carolina currently serves as Speaker pro tempore until a new speaker is elected. This is voted on by the House in its entirety, and Republicans, with a 221-212 majority, are still favored to retain the seat. But, with three names already floating around—Rep. Jim Jordan of Ohio, Rep. Steve Scalise of Louisiana, who is also the Majority Leader, and Kevin Hern of Oklahoma—coming to a consensus may be a challenge.
And again, that could be good for Democrats. Moderate Republicans have shown a willingness to reach across the aisle in the past, and with McCarthy not running again, they don’t need many GOP members to get someone like Minority Leader Rep. Hakeem Jeffries of New York or others into place.
And then again, in Washington, there’s always the wild card. And like there has been the case in the recent term—always, that could be… yup… former President Donald Trump.
"... you don’t actually have to be in Congress to be speaker of the House ..."
See, you don’t actually have to be in Congress to be speaker of the House… as crazy as it sounds. Back during McCarthy’s appointment debacle, names like former Speaker Paul Ryan and other non-Congresspeople were thrown around. Who knows, maybe even you got a nomination.
While it’s unlikely, the possibility is absolutely still there. And according to this, Trump would have no problem stepping back to 3rd in line to the Presidency.
The big question: What’s next for the House of Representatives? How will the next Speaker impact the economy and (most importantly) my portfolio, if at all?
Banana Brain Teaser
Yesterday —
Nicky, Jared, and Antoine are an electrician, accountant, and nurse. Jared is the electrician's brother, and Antoine has never met the electrician or the accountant. Which person has each job?
Answer
Antoine is the nurse. Jared is the accountant. Nicky is the electrician.
Today —
A man named Stewart is traveling all over the world. First, he travels to Cape Town in South Africa. Then to Jakarta in Indonesia. Then to Canberra in Australia. Then to Rome in Italy. Then, to Panama City in Panama. Where does he travel next?
Shoot us your guesses at [email protected].
Wise Investor Says
“Capital efficiently and frequently flows between bonds and stocks. It pays to keep an eye on yields offered by these markets." — Naved Abdali
How would you rate today’s Peel?
Happy Investing,
Patrick & The Daily Peel Team