Retirement Read Time: 3 min

Five for Friday - March 22, 2024

Quitting, Japan, Home Inventory, Tech Softness, and Hot Sentiment

1. Inflation

One of economists’ favorite underdiscussed labor market indicators is the quits rate (i.e., the percent of people quitting their jobs vs. overall employment). In theory, the quits rate is a labor market confidence indicator – the idea being that you typically only quit if you’re confident you can get another job, potentially one that pays more, and quickly. This rate is also highly correlated to wage growth, making it something the Fed will watch closely to monitor whether strong wage growth is spurring more inflation. Two points on that. One, the quits rate itself is back to pre-Covid levels, having fallen to 2.1% from 3.0% in early 2022 (easily a multi-decade high). And sure enough, wage growth is following – per the hiring site Indeed, wage growth has fallen to 3.3% year-over-year from over 9.0% in mid-2022. Ultimately, the labor market continuing to normalize from post-Covid weirdness is a critical asset for those arguing in favor of three (or more) rate cuts in 2024..

2. BoJ

Despite it being a Fed week, perhaps the most consequential central bank meeting was in Asia, where the Bank of Japan raised rates for the first time in 17 years, marking a significant shift away from the negative interest rate policy they’d used for nearly a decade (only finally changing course after union negotiations delivered major wage hikes for Japanese workers). The move is perhaps more symbolic than anything, representing an end to the post-GFC world of central banks holding interest rates at (or below) zero and using a variety of other controversial measures to support growth. Ultimately, a return to a more normal state of affairs is a good thing, especially as research has called into question the efficacy of those policies at doing what they were meant to do all along – spur growth and investment via a cheaper cost of money.

3. Housing

Chart showing inflation levels, excluding housing

The final mile of inflation is all housing – CPI ex-shelter has been below 2% since June – where a lack of supply has met structural demand (millennials in their 30s + work-from-anywhere policies), pushing prices ever higher. Luckily, some positive news on the supply front this week, with Redfin reporting new listings up 3.8% in February to their highest level since 2022, the NAHB homebuilder confidence index rising for the 4th straight month (to its highest since July 2023), and construction of new homes jumping 10.7% in February to an annual pace of 1.5 million units (biggest gain in nine months). Most importantly, this is all occurring with mortgage rates still above 6%, signaling the possibility of a thawing market even without the Fed aggressively cutting rates. Whatever the root cause, multiple forces are working in favor of more inventory – that’s good for buyers and the Fed, alike.

4. Tech

Though Big Tech concentration and the euphoric nature of some AI discourse has driven some fears of a bubble, the sector itself has actually been softening under the surface for a few weeks now. Per our partners at Strategas, “the percentage of Tech stocks above the 50-day moving average has been contracting, ending last week at 61%, the lowest reading since early-November.” While the Tech sector has attracted more dollars over the last 12 months than all other ten sectors combined (!!!), the four sectors leading the market higher over the last six weeks have been Energy, Materials, Financials, and Industrials (all while the S&P 500 Equal Weight actually outperformed the cap-weighted S&P). As we have noted for months, this rally is broadening out underneath our feet and is about much more than simply AI hype.

5. Sentiment

With that said, sentiment is a near-term risk. The widely-followed I.I. survey found fewer investors bearish than any week since 2018, while plenty of other data confirm the optimism (Bank of America: Fund managers most bullish since Jan. 2022, Goldman Sachs: Investor positioning most extreme since mid-2021, Strategas: Sentiment composite most bullish since early 2021, etc.). The S&P 500’s nearly 400-day stretch without a -2% or worse day is the 2nd longest since the mid-2000s. With the macro picture mixed (watch oil and rates), it should surprise no one if a correction is looming.


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