12/5 Daily Market Note: Number of U.S. job openings fall to 8.7 million from 12 million at peak during 2022.
12/5 Premium Strategy Note - Job Market Still Strong?
Hey Folks –
In our pre-market on Whatsapp this morning, we highlighted that yesterday’s sector rotation was healthy and that yesterday’s session most likely wasn’t the “top” that ends the Santa Rally. At some point euphoria will be corrected, but rallies don’t typically end on days where the VIX stages a reversal of its daily advance.
Sell will come, but it most likely wasn’t going to be today, we discussed. Even at yesterday’s high prices, there were opportunities to scalp in our view - which is what we’ve been discussing with tactical put selling.
Let’s talk macro.
U.S. Context
In macro developments today, U.S. jobs openings indicates that there are now 8.7 million open jobs across the country. This was revised downward from 9.4 million in the previous month, and more importantly down from the 12 million job openings peak in early 2022.
To put it in perspective, the U.S. now has about 33% fewer job openings than in did 18 months ago!
This is a result of the intense 18-month rise in Fed Funds Rates that the Fed pushed to multi-decade highs. Simultaneously, this puts employers back into the driver seat in terms of leverage and gone are the days of “Quiet Quitting.” This context continues to put downward pressure on longer-term treasury rates, boosting long-duration Bonds such as TLT. Wall Street positioning so heavily in Bonds will eventually cause a market hiccup if their interpretation of a Dovish Fed proves to be too aggressive.
Eventually, institutional positioning heavily in long-duration Bonds is also going to serve to be a competitor of capital which could have been allocated to stocks. That will be a 2024 story.
China Context
One of the most important events that I’m watching will be if China’s economic plenum is held this month. This meeting is where China’s top politburo members gather to pin down the GDP growth target they wish to achieve next year. The growth target they decide upon will indirectly convey how much (or how little) additional monetary & fiscal stimulus they enact onto the marketplace. This meeting is exceptionally important as China rarely deviates from its longer-term written plans. Once a plan has been decided upon and published, we have to invest with it rather than against it.
There have been rumors that this meeting will be postponed, and that has caused consternation among fund managers that there isn’t yet enough concrete evidence to stabilize the property market and consumer sentiment in the Mainland. Absent sentiment surrounding additional policy support has caused the Hang Seng to be a target for further short-selling. Sentiment remains mired in malaise but experience has shown that it only takes about 1-2 sessions to alter the crowd’s thinking.
For now, the Hang Seng (and therefore China ADRs) continues to be characterized as a market where institutional investors are using Asia sessions where there is no mention of stimulus/policy support to continue pressing down equity prices towards close to their November 2022 lows.
I believe short covering starts to take place in a few stages…