Limbo

Submitted by QTR's Fringe Finance

Markets have been whipping around more violently than usual over the last several weeks, a reminder that volatility is the natural habitat of a late-cycle market.

And despite the excitement that always comes when the Federal Reserve shifts toward easing, I’ll remind readers of what I’ve been saying for more than two years: markets bottom after rate cuts start, not before.

The latest on the job market today only reinforces that view. U.S. companies announced 153,074 job cuts last month, the worst October in more than two decades, according to Challenger, Gray & Christmas. Technology and warehousing led the way as artificial intelligence, softening consumer and corporate spending, and rising costs force employers to tighten belts and freeze hiring. Major companies including Target, Amazon and Paramount-Skydance have already announced thousands of layoffs. ‘

These aren’t isolated “efficiency moves.” They are the early stages of a broader economic contraction.

I’ve explained before that jobs are tied directly to the passive bid that has kept markets levitating at historically insane valuations. When employment weakens, those automatic 401(k) contributions and passive flows weaken too. That’s when the loop starts: fewer passive inflows lead to lower markets, lower markets lead to forced deleveraging, deleveraging leads to redemptions, and redemptions push prices even lower.

Housing is confirming the same story. Redfin data shows sellers now outnumber buyers by about 500,000, the biggest gap since tracking began in 2013. Homes are sitting longer — about 50 days on average, the slowest pace for this season in nearly a decade. Prices remain elevated from the pandemic boom, but buyers have stepped back as high mortgage rates collide with affordability constraints. When sellers outnumber buyers by this magnitude, prices have only one direction to go: down. The last time there was a meaningful imbalance, in late 2018, home price growth collapsed to just 2 percent. Today’s imbalance is almost four times as large.

But here’s the core point I’m trying to make....(READ THIS FULL COLUMN HERE).