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Weekly Economic and Stock Market Commentary – September 4, 2023


As for the stock market specifically:

We closed out the final week of August with gains for the major market averages. Investors ignored some news on inflation and looked at the bright side of life with regard to the unemployment report.

With Labor Day behind us, we now are in the statistically worst month for the markets. According to the Stock Trader’s Almanac, September is the only month to show a losing record for the S & P 500.

We aren’t going to sell everything, nor are we going to ignore the fun rides we occasionally have during the month. The market is on defense, and our defense scored some points last week. The defense may not score each week, and it may give up some points. What we will do is measure the risk and make decisions based upon market conditions. Some of them will have a good outcome, and some will not. So long as I’m relying on statistics, one interesting point to add is, when the markets go on defense in an overall positive market environment (i.e.: the relative strength of equity vs. fixed income favors equity), the markets often gain while on defense. Of course, we never let our guard down, and this is why I inform you of any changes in offense vs. defense.

There has been much talk about how inflation is lower this year compared to last year.

As you know, I am NOT in the prediction business, but I believe we are soon going to have inflation rates higher than we have now.

My evidence for this claim comes from observations of labor actions that occurred over the past couple of months, and a possible strike that is staring us in the face. Earlier this summer the Teamsters entered into a new contract with UPS that called for roughly a 40% pay increase during the 4-year term. An airline workers union obtained a similar increase. The United Autoworkers want a 40% pay increase for its next contract. If there is no agreement, they will strike starting next week.

Each union stated these increases are necessary to keep up with inflation.

Inflation and average hourly earnings decreases eroded our purchasing power by approximately 20% since the beginning of 2021. The pay increases sought by the unions, and obtained by 2 of them, will overcome that loss of purchasing power, and then some.

Union membership is not as prevalent as it was 50 years ago, as we all know. However, the pay increases won by these unions will be sought, and likely matched, by other employees.

It would be foolish to believe sellers won’t increase prices by a similar amount.

By the time we get through the cycle, there won’t be much change in living standards, but the numbers will be larger. Then we get to start the cycle again.

The bullish percent indicators rose last week, but there has not been a change in direction. We are not close to a change either. We will be happy should the defense put points on the board and will monitor. I recommend WEALTH PRESERVATION strategies at this point.

Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of September 1, 2023 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Labor announced the economy added 187,000 jobs during August. This was well above the 170,000 forecasted by economists. The bad news was the unemployment rate rose to 3.8% from 3.5%. Average hourly earnings rose 4.4%, which is close to the inflation rate over the past year. Another 763,000 people entered the labor force last month, which moved the labor participation rate to 62.8. Those additional entrants likely moved the unemployment rate. Something else reported in the news release concerned a very large percentage of part-time jobs added, with people not finding full-time jobs, but accepting part-time work. That is not a good sign overall but does suggest inflationary pressures.

The report continued a pattern of “great” numbers for the current month, with significant downward revisions to the prior 2 months. Friday’s report noted that 100,000 new jobs attributed to June and July did not actually occur. I won’t say the books are cooked, but the sampling method they use needs improvement.

The Federal Reserve released its Personal Consumption Expenditure measurement of inflation. This was for July, and it showed a gain in inflation compared to June. The July level was 3.4%, which was above the 3.0% level expected.

If you have any questions or want more information about a particular stock or mutual fund, please contact me.