Stock Market- Wages & Rates Spike & the Market’s Confused-What’s Next? Read it!

February 5 2022 Option Professor Opinions & Observations


Last week the stock market was shocked and surprised BUT we were not. The reason we are not shocked by the Jobs Report or the market gyrations is that we try to look at things through the PRISM of REALITY. We said last week that inflation is not going away quickly if anything it could accelerate with the CPI number on Thursday. C’mon…EVERYONE is RAISING prices with Amazon bumping the price of PRIME by 20 bucks as recent evidence. The Jobs Report was a no brainer…the stimulus money is GONE….the stock market gains are GONE…so people have to CAPITUALTE and go back to work which means we’re UP 460K+ which also means WAGES yoy are going UP toward double digit numbers! The jump in real estate and rents are also starting to bleed into the inflation numbers and some rents are way ABOVE pre Covid levels. The consensus is that economic growth will slow but if it doesn’t then WAGE + PRICE inflation=TROUBLE. What will consumer spending be like when the weather gets better and the variant scare subsides? Lotsa $$$ out there.

NOW…RATE HIKES COMING & MAYBE FASTER THAN THE MARKET HAS ALREADY PRICED INTO THEIR FORECASTS! Let’s talk about the cost of money and how much you get paid of fixed income. The Fed is so far BEHIND their MANDATE for stable prices that it is a joke (but it was also a joke for them to be BUYING mortgages AFTER real estate prices had gone thru the roof!). The 2 yr Treasury yield is ABOVE 1.30% and that has already more than DOUBLED in a short time. The spread between 2yr and 10yr yields has yield have tight end and if they invert a recession generally follows. The Fed is STILL BUYING in the market as we speak! Do they really think 1/4 point hikes over many months is the remedy to cool things off? We think not…so why wait for March? We feel it’s the direct opposite of QE….in that when things are disastrous (2008 & 2020)….people will agree to ANYTHING to stop the bleeding which means it’s OK to the “helicopter Cash drop” (stimulus-PPP-14 facilities to print money and bail out bad actors). The Fed & Treasury were given the green light to run UP the deficit and EXPLODE the money supply…and cheered for doing so. Since they forgot their basic economic courses from Wharton….they are “shocked” by inflation jump after a 35% jump in money supply?? Why MARCH? Our view is by then the entire planet will see they need to hike and they will be cheered for doing so as most Americans could care less if the SPX is 5500 or 3500..but they do care about prices of GAS & FOOD!

Having been in these markets for many decades: we see the market behaving as it should….companies with duration earnings are whacked while free cash flow machines are rewarded (unless you tell the world your competition (TicToc) is problematic and you are spending a ton on an unknown revenue source (metaverse) and daily user growth is gone. This is FB’s story. We gave KEY PRICE POINTS on the SPX last week in the UPDATES and reiterated them this week….so we will repeat……4610…4561…4488……..UNDERNEATH…..they are 4402…..3866…3575…numbers based on TIME & PRICE.

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Jim Kenney

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