Growing inflation concept with businessman drawing growing simple graph, bokeh in background.

Inflation May Make An Ugly Return This Week

 

#STOCKS – Microsoft, Apple | #MACRO – Jobs, CPI, S&P 500

Michael Kramer and the Clients of Mott Capital own MSFT and Apple – Long-Term

Unemployment Report Shocks Markets

Last week’s unemployment report was shocking. During a live session for paying members, I found myself staring at the data, unable to respond, coming in at 254,000. The highest analyst estimate was 220k, and the whisper number on Bloomberg was 152,000. What made it even odder was that both August and July figures were revised higher, along with wages.

We spent three months working under assumptions based on the data, only for everything to unravel in seconds. This makes me hesitate to shift from the “higher for longer” policy camp to the stagflation/recession camp. A 4% wage growth rate is inconsistent with 2% inflation but aligns with a 3% rate, assuming 1% productivity.

Wage Growth and Inflation

The data is inconsistent because the average workweek fell to 34.2 hours, a level not seen since the 2008 and 2020 recessions. It hit 34.2 hours three times in 2024. A drop below this level would raise concerns.

Unemployment Data 2024

Aggregate Weekly Payroll Growth

We saw the Index of Aggregate Weekly Payroll growth slow to just 4.9% year-over-year, near the lower end for this business cycle. This suggests that nominal GDP growth for this quarter may have slowed as well, as the two tend to track closely over time.

Weekly Payroll Growth

The Aggregate Weekly Payroll 3-month annualized change reached about 4.4% in September, higher than June’s 3.6%. Nominal GDP growth in 2Q was 5.6%, and the Atlanta Fed’s model estimates the same for this quarter. If payroll growth is rising while GDP remains steady, this indicates higher labor costs and reduced productivity, potentially fueling inflation.

September CPI and Inflation Risks

CPI swaps indicate that September inflation could exceed expectations. They are pricing in a 0.2% month-over-month increase for headline CPI and a 2.4% year-over-year increase, surpassing estimates of 0.1% m/m and 2.3% y/y. The real risk is shelter inflation, which could surge based on trends in Shiller Home Prices and a potential 12-month lag in the CPI Shelter Component.

CPI Inflation 2024

Currency Market Impact: USDCAD and USDCHF

A hotter-than-expected CPI would strengthen the U.S. dollar, particularly against the Canadian dollar (USDCAD), which has already weakened. However, unless USDCAD breaks 1.36, it’s unlikely to severely impact equity markets.


The other currency to watch is USDCHF, which seems to have formed a diamond bottom pattern, indicating a potential return to 0.87 or 0.88. Historically, this has impacted Apple’s stock price due to the Swiss National Bank’s significant $10 billion stake in Apple.

USDCHF Currency Chart

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This movement also affects Microsoft in a similar manner.

Microsoft Stock Movement

S&P 500 Technical Analysis

The S&P 500 remains in a secondary rising wedge pattern, and despite Friday’s unusual price action, this structure remains intact. Liquidity in the market is weak, and the top of the book hasn’t improved, leaving bid/ask spreads wide and gamma levels neutral. Should sellers step in, the market could be poised for a significant move downward. However, I’ve been wrong before and could be wrong again.

S&P 500 Technical Analysis

See ya later,
Mike

Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.


 

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