Office Parties and Market Trends
I’ve been to enough holiday office parties to know the risks.
The last couple months of any year is crunchtime for most businesses. Stress builds. And minds wander to gift shopping, travel planning, teenage kids cramming final exams while grade school kids prep for holiday concerts – distractions that feed the stressful frenzy…
And then you finally get that night out with your spouse/partner – dressed to the nines, nice dinner, the booze is flowing, co-workers are letting loose…
It’s been a few years, but the last office I worked in, the party was always on a Friday, and there was always a “Meltdown Pool”– like a dead pool, but instead of wagering on celebrity deaths, you’d drop a couple bucks in the kitty along with the name of the person that you thought had the best shot at leaving the office party with their hair sticking out all over because of the tie that’s now around their head, or carrying shoes because one or both stiletto heels busted off, or waiting outside for an Uber before dessert is even served…
One year, the party was crashed by a former colleague still on friendly terms who ended the night sitting by the banquet room doors sobbing as party-goers filed out. No way to see that coming – the Meltdown Pool had to carry over to the next year…
Another year, valet drivers had to help one of the company owners climb out of a mini-van that looked just like his, but had the wrong family in it…
The party was always a Friday, so potential Meltdown Pool winners would have two full days to reflect on their actions – at least what could be remembered – plenty of time to start thinking “uh-oh.”
After a rip-snorting rally like we had on Friday, I think traders that carry bullish positions over the weekend often experience a similar sense of foreboding dread as Monday’s opening bell rings at the New York Stock Exchange…especially in a bear market.
“Ruh-Roh, Raggy”
Bear markets are famous for rip-snorting rallies. After a stretch of relentless selling, it often doesn’t take much to kick off a sharp move higher.
It’s kind of a given that many stocks will *look* cheap after the S&P 500 drops 15% in a couple weeks. You look at Amazon (NASDAQ: AMZN) down 60% over the last year and 10% in the last week, or Tesla (NASDAQ: TSLA) down 69% over the last year and 24% in the last two weeks and think “holy crap, this has gone too far, the market’s gonna launch and I’m gonna make a boatload of money!!”
A data set like what we got from Non-Farm Payrolls on Friday is a perfect catalyst to kick off a FOMO rally…
Funny, I haven’t seen the acronym FOMO since the pandemic rally fizzled out around Office Christmas Party time, 2021. The acronym itself means Fear Of Missing Out, and it’s as good a description of what happens at the end of a bull market as any.
But when a rally gets to the FOMO stage, it also means there will be some pretty spectacular Meltdown Pool candidates that will be revealed when the bull gives way to the bear. Yeah, I’m looking at you, Sam Bankman-Fried…
Now, I expect you’ll be happy to hear that this grand rambling intro is not a set-up to talk about crypto – even though it’s as good an example of a FOMO *investment* as the world’s ever seen.
No, I’m here to talk more about inflation, this bear market and Friday’s Non-Farm Payroll (NFP) report.
I know I talked about this on Friday too, but there’s more to this story. You may have seen commentary that questioned exactly why traders got so excited about the economy adding 223,000 jobs in December – especially when the estimate was that the economy would add just 203,000 jobs. After all, shouldn’t the fact that the payroll number came in so much better than expectations be a bad thing?
Well, yes. And that’s probably why traders thought “uh oh” and started selling when the S&P 500 was vaulting over its 50-day Moving Average (MA) this morning. After all, the 50 day MA is widely considered to be an important indicator for the medium-term trend. I can blame anyone for wondering if Friday’s NFP report was enough to change the stock market’s trend…
But I’m here to tell you I think it did. And tell you why…
A Look Ahead
One of the reasons the Fed has been so aggressive with interest rate hikes (aside from the fact much of the inflation problem we’re dealing with is the Fed’s fault) is that the jobs market has been so strong. In fact, the NFP report has beaten expectations for 9 straight months. But this might be the fault of the grumpy old men with calculators…
Because the NFP number itself has been falling pretty steadily – 223K in December, down from 256K in November, down from 263K in October, 269K in September, 292K in August and a whopping 537K in July.
You need more than one data point to make a trend. Well, that’s 6. Looks like a trend to me.
Wage growth and job openings have also been trending lower, which is also good.
Earlier today, I saw a cool chart for the Baltic Dry Index (BDI). If you don’t know the BDI, don’t worry about it: it measures costs for dry bulk shipping (dry, as in, not oil). The headline of this cool chart tells you need to know:
Transportation costs are an important input for the cost of goods and for inflation. Lower transportation costs have been helping to cool inflation from 9% last year to 7% now. And I think it’s reasonable to expect the inflation data we get later this week to come in lower than it did last week.
If so, we will get another rip-snorting rally higher. And this time, I bet the S&P 500 holds over its 50-day moving average.
That’s it for today, take care and I’ll talk to you tomorrow,
Brit Ryle
Editor-in-Chief
Pro Trader Today