VIDEO: Never Mind Powell, It’s the Jobs Data That Will Matter

With this week bringing an appearance by Fed Chair Powell, September PMI data and multiple looks at the jobs market, Chris Versace lays out what the Portfolio will be focusing on and why in today's Daily Rundown Video. 

As we put to bed a better-than-expected September, he ticks off the items that could challenge the overbought and valuation-stretched market as it heads into what is typically a seasonally-strong time of year. 

"This week, it's going to be an important one for the market, and we'll be drinking in all the data ... updating our thinking as we go," he says. "We will be covering quite a bit of ground, potentially breaking some new ground as well."

Transcript

CHRIS VERSACE: Hey, folks, Chris Versace, Monday, September 30, last day of the month, last day of the quarter. And as you've probably noticed, September has been a month that has really bucked the historical trend, performing much better than expected, that has, of course, led the quarter to date to be very robust, as well, both for the market and for the portfolio. When you look at the portfolio on a quarter-to-date basis, nearly a dozen, if not more, positions handily beating the S&P 500.

Notable stalwarts, of course, have been tied to the expectation for rate cuts, talking about Builders FirstSource, United Rentals up significantly. Surprisingly, though, Vulcan Materials, which of course, benefits from the same drivers as United Rentals, and from the expected rebound in the housing market, like Builders FirstSource, kind of languished quarter to date. And I think that's a bit of a disconnect.

I think we're going to get some data coming up this week that might actually start to spark some movement in the shares of Vulcan Materials. I'm talking about the August construction spending report, but also, the potential data and what it could mean for rate cuts. And it's going to be a big week for rate cuts.

Why do I say this? Well, yeah, we've got Fed Chair Powell speaking today. OK, fine. The market always tunes in, as do we when the Fed chair speaks. But the reality is this. The only data that we've gotten since Powell last appeared at the Fed policy meeting was the August PCE price index. And we talked about it last week with you.

Did it show further progress on inflation? It sure did. But we didn't really get any other meaningful data about the speed of the economy and of course, the Fed's now equal focus, when it comes to what's driving its policy decisions-- that's right, not just inflation, but jobs, job creation, the job market. We haven't really gotten anything new on that in the last several days. But that is going to change this week.

Here's the thing. All this data that we're going to get this week really comes after Fed Chair Powell speaks. So do we expect any groundbreaking words out of Powell? No, we don't. Instead, as the data comes in, we're going to have to watch the wave of other Fed head speakers that will be making the rounds this week. And just like last week, there is a number of them.

So what is this data that we will be getting? Well, if you saw Friday's roundup, you'll have some sense of where I'm going with this. But if you didn't, let's just spell it out for you. It is going to be a big week for jobs data. That's right. We're going to get the ADP employment change report, and we will get the September employment report.

What folks will be looking for in both of these, is what is the pace of job creation in September? Is it accelerating? Is it decelerating? Is it coming in weaker than expected? Is it coming in stronger than expected? This is all going to play into understanding the pace of Fed rate cuts.

We also will get the August JOLTS report. And yes, this is a little backward looking. But it's important as a corroborating indicator for the health of the jobs market. So we will be looking into that as well.

The other thing across the ADP employment report and the September employment report that we'll be looking at will be wages. Why? Well, if you read our alert from last week, well, then you know that the pace of real wage growth was slowing. The savings rate fell. That raises some concerns about the consumer, heading into the holiday shopping season.

So we will want to see what the September wage data has to say. Is it accelerating? And if it is, there could be some questions, modest ones about inflation. Folks are more likely to tune into that as a potential positive for the holiday shopping season.

One other thing just to think about as we get some of that data, last week, we did see the second quarter GDP be revised to 3%. And coming into this week, the Atlanta Fed's GDP now model is around 3.1%, Not exactly figures that tell us the economy is falling out of bed. If anything, it tells us that the market's going to have to really dig into the data, the employment data, but other data that's coming this week, to determine, are we on a no landing scenario or a soft landing scenario?

Helping the market figure that out, what will we be getting this week? Well, a rash of September PMIs, both manufacturing and services from ISM and, of course, S&P Global. Now, from time to time, these reports can conflict. But we do parse not just the headline data, but also, the underlying data about new orders, about inflation, and yep, about the tone of the jobs market.

So we'll be putting all those pieces together alongside what we see in the more focused employment data coming out this week as well. And here's the thing. Should the economy show-- sorry, should the data show the economy is slowing more than expected? That bad news is likely to be good news for rate cuts. And the market will welcome that.

If, on the other hand, we see good news for the economy, better than expected data, it could raise questions about how and when the Fed will implement the next round of expected rate cuts. Currently, the market, just so we're setting the table here, it sees two 25-basis point rate cuts coming, one in November, one in December. And if the economic data better than expected, there could be some questions bubbling up about the that-- excuse me, November rate cut.

Let's talk about the market now. That's the economy and the Fed. Let's talk about the market. Current narrative has the market moving higher. As much as folks were ready for a September to be a bad month, they are also seeing the market enter what is typically a seasonally strong time of the year, especially as the Fed is leaning into rate cuts.

But we've talked about this a little bit last week, bears repeating. The market is short-term overbought and the S&P 500's PE valuation, that's right, stretched further than it was earlier this year. What are we likely to see or could we see? Some FOMO in the market, folks who don't want to miss out.

Why do we say this? Well, fear and greed index solidly in greed. So when we put all this together, we have to sit back and ask ourselves, what could complicate this picture? What could upset the market apple cart, if you will/

Well, coming out of the weekend, Middle East tensions clearly heating up, we'll have to watch that in the impact on oil. The weakening of the global economy, the September PMI data for China, let's just say it explains China's potential stimulus plans. But so, too, does the warning out of Stellantis and Aston Martin. They both issued profit warnings due to yeah, some industry challenges, but difficulties in the world's largest auto market, China.

So we have two things, but to that, we can add the potential port strike that's slated to begin tomorrow, Octoberfest first-- excuse me, I don't know what's going on, October 1. As we've talked about, that could cripple ports and supply chains, make for a thorny holiday shopping season.

We also have just over a month now until the 2024 presidential election. Things are going to get hot. Things are going to get heated. I talked a little bit about this last week.

Remember, we do see a tight race driving a lot of campaign advertising. We're well-positioned for that, obviously, with Alphabet Meta and of course, Trade Desk. But the other thing we have coming is the September quarter earnings season. We closed the quarter today. Companies are in their quiet period.

Roughly over the next two weeks or so, we'll start to enter the September quarter earnings season. We're going to want to take our cues from the companies that reported last week. Remember Micron? Very positive. But we have another set of companies reporting this week, including Nike, McCormick, and Conagra. And we'll want to pay attention to what they have to say about the consumer, the consumer trading down with Nike.

What's the outlook for currency, given the fall in the dollar? What are they seeing on the ground? in, of course, not only the US, but Europe and China. So we'll want to be putting all these pieces together and of course, those that will get early next week from companies that report as well. And as we put these pieces together, we're going to want to pay attention to any preannouncements that we get, both positive and, of course, negative.

That means that we're going to be updating our thinking as we collect all the week's economic data and what it could mean for rate cuts and earnings, but also, these other items that I mentioned that we'll be watching, including the port strike. Because remember, the issue here is going to be one of duration. The longer the port strike goes on, the more issues it's going to present.

So yeah, this week, it's going to be an important one for the market. And we'll be drinking in all the data, as I said, updating our thinking as we go, sharing it, of course, with you. But it's also going to be a big week because we have our Quarterly Members Only call on Wednesday, where I'll be talking with Conway Gittens about the market, the economy, and of course, the portfolio.

And because today is the last month of September, that means that Friday, we will have our next edition of the Monthly Roundup, where we dig into every position in the portfolio. We also have our office hours on Tuesday and Thursday. So yeah, across it all, folks, we will be covering quite a bit of ground, potentially breaking some new ground as well.

So get ready. Strap in. Buckle up. Be sure you check your emails. Check your alerts. We want to make sure you're getting our latest thinking and if we make any moves with the portfolio, you know it. We want you right there with us. Thanks for watching.