Welcome back to another “Week In Review” article! We saw a difficult last week in markets to kick off the year, and we enter into the second trading week of January digging out. I have mixed feelings about diving down too granularly into the macro picture and economic health in this particular issue, and will opt for keeping things more high-level points and relate them to the action we are seeing in the markets. We will do a deeper dive into last weeks jobs number though further down in this piece.
[Also, stayed tuned to the end of this article where I provide a link to a special video segment we aired on the KE Report last week, that analyzes the fundamental and technical setup in a gold stock, a silver stock, an oil stock, and a uranium stocks my trading portfolio.]
To start things off; what we can say about the first week of January trading in 2024, was that we did see the anticipated post the “Powell Pivot Party” hangover in full effect. In a previous issue a few weeks back, the question was posed about whether we would see a hangover from the widely celebrated market pivot party, and last week, some market participants realized that once again, maybe they’d overdone it. We’ll get into some of the potential factors that led to 2024 getting started with a weak whimper instead of a bang, but needless to say, it wasn’t a strong start to the year.
Let’s look into what could be driving some of the recent market action, outside of endless pontification in the financial media of what may happen with Fed policy in the months to come, and when they’ll start cutting rates and how many times….
As the US Dollar and interest rates put in intermediate tops in October of last year, that seemed to market the bottom in most other markets from US general equities, to cryptocurrencies, to commodities. For the last 2.5 months of 2023, off that October bottom, we saw a meltup in most market sectors, and that was even further juiced up into a full-on “Santa Claus rally” in December; where momentum begot more momentum to the upside. The first week of January was a stark reversal of those trends, where the US dollar and interest rates clawed their way higher a little bit, and most markets other markets took it in the shorts and had a corrective week into the red. That’s the main takeaway for the first week of January 2024 in a nutshell.
Now, many would argue that technically most markets were getting overbought on shorter time-frame charts like the hourly and daily charts by the end of last year… and they’d be correct. We were overdue for a corrective period of trading, for general equities and resource stocks, to let the pricing momentum and strength indicators cool their jets a bit on the charts. Some of the outperformers in the small to microcap area of the Russell 2000, that had rallied the hardest, also fell the most. This is par for the course, and Mr Market repeatedly demonstrates that what gaps up must also gap back down. Even the cryptos, that had seen blistering rallies in late December, fell hard from Tuesday’s trading into Wednesday’s action, before coming back up the latter part of last week on Thursday and Friday.
The January Effect
Keep in mind that one trading week does not make a market, but it was a bit of a gut punch to many investors that place an undue amount of importance on the seasonal “January Effect”. The old adage is that “So goes the first week of January, goes the month of January. So goes January, goes the year.” Personally, I’ve never put a lot of stock in the January Effect, as we’ve seen the markets do just the opposite about half the time, and January is a particularly volatile month where there are many funds and individuals making trades for tax reasons that they moved forward into the new year, as well as positioning in new sectors. Typically the whipsaw action we see in early January, as money is rotated out of the old and into the new, settles down to a more discernable trend in the latter part of January and the months to follow once the new portfolio rebalancing has occurred.
I also agree with my buddy Joel Elconin, that we interviewed on the KE Report last week, that what we were seeing was a lot of traders that didn’t want to have to pay taxes on gains for 2023, wait until the first week of 2024 to ring the register on profits, so that they have a full 16 months (calendar year of 2024 through April of 2025) to deal with those potential tax implications, and potentially lose other tax loss selling strategies to wash those out before having to pay the piper. All things considered, lieu of the big gains many were sitting on in late December, combined with technically overbought conditions in the near-term, this profit-taking trend and rebalancing the first week of January seems like the most likely thesis for the action we saw to kick off January.
Here is a link to that interview with Joel Elconin over at the KE Report last week where we discuss this phenomenon and how last week the bears were in control.
Why Are The Markets Still Trading Like One Universal Chart?
As a quick aside, we’ve had a regular guest on our show, Craig Hemke, that has pointed out that for some time now the last few years, it really does seem like the overall market sectors are trading like “One Universal Chart.” There have been so many periods of time over the last few years where we’ve seen rallies in US general equities, bonds, cryptos, and commodities all together as a group, and also the exact converse of that, where all of those sectors corrected as a group.
Now as Joel Elconin pointed out in the interview linked above, on a case-by-case basis, there is obviously money rotation out of some sectors or stocks and into others at any given time. However, on the broad scale, looking at the main equity indexes, or bonds, or cryptos, or resource stocks (which are still equities) they have generally tended to rise and fall in tandem more and more over the last 2 years. They corrected down hard in 2022, rose up in early 2023, crashed back down in the spring, then rallying into the summer, then everything fell into that October low, and then everything rose together again in the fall of 2023.
The reason behind this bizarre trading action over the last 2 years is easy to see and hiding in plain sight. Since the Fed has embarked on their tapering of Quantitative Easing in the bond markets in late 2021 through spring of 2022, and then their very aggressive rate-hiking cycle from the spring of 2022 through the end of 2023, the markets have become fixated on how this moves the bond markets (and inversely interest rates) and currencies. For the last 2+ years, it has been all about interest rates and the US dollar. Full stop.
There are varying reports as to how pervasive “high-frequency trading (HFT)” or “machine trading” or “robo trading” is these days… but most numbers are in the 70%-80% range of all total trading. These machine trading methods utilize complex algorithms to analyze multiple markets and execute orders based on market conditions. In the past they may have been more keyed off economic data from manufacturing, retail, consumer confidence, jobs, CPI, multiple currency pairs, keywords from Fed officials, etc….
In the recent past, despite the complexity of the pre-programmed algos, it seems like more and more market factors have coalesced down to trading inversely to the 10-year and 2-year bond yield and the US dollar. We’ve seen so many trading sessions in 2022, 2023, and even to kick of 2024 where on one side of the giant teeter-totter were interest rates & the greenback, and other side of the giant teeter-totter were all the other market sectors. Apparently, most broad market sectors have become so incestuous, that all the other factors seems to funnel down into what is happening with rates and the US dollar. This is precisely why most markets bottomed in October of last year, right when the 10-year bond yield was piercing 5% for the first time in over a decade, and the US dollar was up double-topping around that 107 level. Then as the interest rates and the greenback rolled over, magically, the “One Universal Chart” for all the other markets turned higher again for the balance of the year.
Now of course this is overly simplistic, and clearly there are sectors like energy (oil, natural gas, uranium, renewables, lithium) marching to the beats of their own drum and ignoring the One Universal Chart concept. So yes, there is nuance needed here. However, it is quite uncanny how overall when the interest rates are down along with the dollar, that equities are plowing higher, and so are bonds (which used to be more inversely correlated to equities), so are cryptos, and so are gold and silver and copper stocks. If bond yields and greenback then start clawing their way higher, like we saw last week, then everything else sells off into the red. It would seem this encapsulates the vast majority of the trading we saw across the spectrum last week to kick off January, and these 2 inputs will continue to be the prime movers going forward (the January Effect be damned).
In next week’s issue, we’ll get back into the nitty gritty dissecting the macro factors and the charts for interest rates, the US dollar, and equity markets again, and keep following along with how these trends continue to unfold in the year to come. It just seemed overdue for a general discussion on this “One Universal Chart” concept, and the tunnel-vision the algos have on the 10-year yield and the US dollar for trading cues, once we saw it play out once again perfectly last week.
Here is a link to the interview we conducted with Craig Hemke last week where we dive into these concepts in more detail, and look ahead to what other macro factors may be setting up for the year to come. We also, of course, review the precious metals market outlook with Craig.
Last week was more sparse on the macroeconomic news front, with some notable information midweek from the manufacturing sector getting an ever so slight bump higher to kick things off. The December ISM manufacturing index rose from 46.7 to 47.4, which isn’t strong by any account, but it marginally beat expectations. Additionally last week the US Congress continued to work on passing spending bills to avoid a government shut down. It is interesting to point that that the prospect of the government “shutting down” seemed to garner little press, as apparently most are done getting snared up in this political theater and endless partisan posturing.
However, the clear focal point and bigger macro news was the end of the week Non Farms Payroll (NFP) Jobs Report, and so we’ll briefly touch on that here. It should also be mentioned that in this week to come, that all eyes will be on the CPI inflation reading report. So we’ll watch the market reaction to that inflation data later in this week, and then dive further into inflation trends and market ramifications in the next issue.
Let’s Talk About The Job Report At The End Of Last Week:
We finally got the highly anticipated NFP jobs report on Friday, and according to the Bureau of Labor Statistics’ December jobs report, non-farm payrolls (NFPs) experienced a growth of 216,000 in the last month of 2023. This marked an improvement from the downwardly revised 173,000 reported in November and exceeded the anticipated figure of 170,000. There were an addition of net private sector jobs of 164,000 in the month of December, and this beat expectations (surprise surprise) above the initial estimate of 125,000 jobs. The unemployment rate was unchanged at 3.7 percent. This was the first major economic news of 2024, and something the Fed and market participants watch very closely.
We had a nice summation of the key takeaways from the jobs report and some of the nuances within it, over at the KE Report with our guest Marc Chandler this last Friday. Marc also unpacks some of the other key economic data and currencies moves last week, so that interview linked below is a great summation of the macro moves last week.
As it relates to this Jobs Report data…
The question remains: What will the actual December jobs number be once it gets revised next month?
Then the follow up question: Does anyone actually care about any of these actual revised numbers that get released?
There is a game that has been going on for over a year now, with regards to these jobs numbers and the supposed correlated health of the underlying economy. We’ve seen a steady stream of record consecutive “better than expected” jobs reports all of last year in 2023, only to then be followed by monthly revisions lower to the downside after the “fact.” One or two wouldn’t be a big deal, but something like 14 of the last 16 monthly NFP reports saw revisions, and most of those were revisions to much lower levels.
It is pretty crazy that a number gets tossed out that seems to mostly eclipses the line in the sand for expectations, where it then gets touted by the press and political pawns; only for that same number to then get revised down lower below the bar after the fact. Why are so few market observers calling foul on this whole gaming the market process?
The repeated jobs data beats are used as the narrative fuel and the evidence that we are having the proverbial “soft landing” and avoiding recession. Talking heads from mainstream economists to Fed sycophants on TV take victory laps using these better metrics, and then never go back to adjust for the revisions to all those prior months. The actual numbers become a throwaway afterthought.
Sure, regardless, one can make the case that the labor markets have held up much better than most economists were expecting in the face of businesses digesting the huge spike in interest rates and related borrowing costs. However, the jobs numbers are not nearly as strong as they were initially reported over and over again, and it has become the norm. It should be pointed out that if the real “revised” numbers were the figures published initially and reported on, then there would have been very different market action over this last year; and those pulling the strings on the economic narrative in the media know that. If many of those “better than expected” numbers came in as expected or worse lower than what was expected, like the revisions show, then there would have been headwinds to markets instead of tailwinds, and yet this never seems to get addressed.
It’s the equivalent of releasing a damning press release on an individual or company in a publication, letting the changing sentiment and social fallout occur, and then on the back pages of a future publication writing a small retraction to that story that nobody actually reads. With regards to this gaming of the jobs numbers as the proof of our strong economy, it should also be pointed out that most outlets only tout the headline numbers without ever diving under the hood. It is the exact same games we see played with inflation metrics via CPI, PPI, and PCE numbers get reported in the financial medial.
For example, most outlets run with the job beats number headline, and then fail to mention that the number of full-time jobs actually fell while the number of part-time jobs soared. Or how about the participation rate falling or that there are so many people that get double counted as they are forced to take a second part-time job, since there wasn’t a primary full-time job available? Many talk about a robust economy, and then fail to inspect that many of these new jobs are created by the government, or in industries that are not really driving the productive growth of the country. Even worse, rarely do most of the mainstream financial media participants, or central bankers, or political hacks ever acknowledge the aforementioned string of revisions lower to levels in the prior jobs numbers, that really came in under expectations or flat out disappointing after the fact, in their “soft landing” narratives.
I enjoyed the way Quoth The Raven over at QTR Fringe Finance broke down different subsectors within this recent jobs report in a missive he sent out to his subscribers:
“Of the 216,000 jobs added last month, ponder the key components. Does that the data really indicate a strong underlying economy? Of that positive 216,000 number, 58,900 were in the “health care” and “social assistance” category (lumped together by BLS). Not to diminish those careers and jobs, especially in the health care category, but “social assistance” covers such jobs as those who work at nursing homes, provide ‘community food and housing,’ ‘child, family and school social workers,’ and ‘personal and home care aides’ (by far the largest subset), among other such subsets. (We’re using the Bureau of Labor Statistics employment category definitions.) And, as usual, a huge percentage of the overall employment number comprises ‘Government,’ which enjoyed a 52,000 gain! A strong functioning part of ‘the economy,’ this category? And yet another huge percent of the employment number was ‘Leisure and Entertainment’ at 40,000. These three categories comprise 69.9% of the big number given Friday! As for the sectors that one might rank as important within a ‘strong economy,’ ‘Construction’ enjoyed a 17,000 gain; ‘Manufacturing’ 6,000; ‘Financial’ 2,000; ‘Professional and Business Services’ 13,000; all trivial. And then ‘Transportation and Warehouses’ which lost! 22,600. Believe what you wish when the chattering heads on financial TV rave about how strong the economy is.” [Bingo]
Regardless, of whether or not any of the finer details in how the jobs reports are compiled and then revised later add up to the very rosy picture being painted in the financial press about the health of the economy remains to be seen. What we can say is that both the labor markets and inflation readings will remain the 2 key macro inputs on everyone’s minds in 2024, and how that relates to Fed policy.
Wrapping up here for this “Week In Review” article I also wanted to share a fun video segment we did over at the KE Report, where I review the fundamentals on 4 stocks I hold in my portfolio (a gold stock, a silver stock, an oil stock, and a uranium stock), and where long-time guest Richard “Doc” Postma and Co-host Cory Fleck both analyze the daily, weekly, and monthly charts for each company.
The companies featured in the interview above are:
Equinox Gold (EQX)
Silvercrest Metals (SILV)
Baytex Energy (BTE)
Energy Fuels (UUUU)
As always, the opinions shared in this article and the list of gold companies shared that I hold in my portfolio, is definitely not investing advice. I’m not recommending any of these for anyone else to purchase, but rather; I’m simply sharing my opinion on how I view the gold stock sector, and sharing which stocks animate me personally. This information should not be relied upon as accurate or complete in nature.
Everyone should do their own due diligence, talk to their financial advisors before making any investing decisions, and ultimately make their own decisions on what are appropriate risk speculations and appropriate position sizing. This editorial is simply to illustrate the overriding concepts on why I’ve isolated these types of companies in my own portfolio, and their potential value drivers from my unique vantage point.
In future Substack posts, in the weeks to come, I’ll continue to unpack why I have some companies in my personal portfolio. So stay tuned for future updates here, and my take on what separates them from the rest of the pack.
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