Jobs number strike one. Two more pitches this week, Election & FOMC

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I am not sure what to say, 12,000 jobs and the bonds sold off, and this week is the Fed two-day meeting and the rate decision. I asked ChatGPT what happens when both the jobs number falls and so do the bonds:

When a weak (higher-than-expected) unemployment number is reported, it typically signals that the labor market is struggling. Here’s what generally happens in such scenarios and how it can impact bonds:

1. Bond Prices and Yields: Weak unemployment data can create uncertainty around the economy's strength, often prompting bond prices to rise as investors move to safer assets like government bonds. However, if bond prices fall despite weak unemployment numbers, it may indicate that inflation concerns or other factors (like the Fed's monetary policy stance) are outweighing economic slowdown fears.

2. Interest Rate Expectations: Weak unemployment figures can lead investors to expect the Federal Reserve to either pause rate hikes or potentially cut rates to stimulate the economy. Lower rate expectations would usually push bond yields lower (and bond prices higher). If bonds fall, it may suggest that the market believes the Fed will keep rates elevated for longer or that there are structural concerns about inflation.

3. Equity Market Reactions: Equity markets might initially react negatively to weak unemployment data, as it suggests potential challenges for consumer spending and corporate earnings. However, if bonds fall (yields rise), it could signal less support for equities due to higher borrowing costs, which could hurt growth stocks in particular.

4. Inflation and Fiscal Concerns: If bond prices drop on weak unemployment news, it may indicate that the market sees persistent inflation risks or is concerned about the impact of high government spending and borrowing on bond supply. Persistent high inflation would keep upward pressure on yields, even with weaker economic data, as investors demand higher returns to compensate for future inflation.

In summary, a weak unemployment number would typically boost bonds (leading to lower yields). If bonds fall instead, it suggests that the market’s focus may be on inflation, fiscal sustainability, or a perception that the Fed might remain hawkish despite softer economic data.

The PitBull said, ‘It was a bullish number, bonds should be up but are down, signals a credit crisis, stagflation, bonds scare me that something is rotten in Washington. Stagflation like in 1973-75 when they killed the Nifty Fifty.’

I was not around during the 1973-75 crisis, but I do remember my parents lining up to put gas in the car, but this is what ChatGPT said.

The stock market during 1973–1975 experienced one of the most severe downturns since the Great Depression, driven by a combination of economic and geopolitical factors. This period, often referred to as the "1973-75 recession" or "1970s bear market," saw significant losses in the U.S. stock market. Here’s a breakdown of what happened and why:

1. Oil Crisis

• OPEC Oil Embargo (1973): In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo in response to the U.S. support of Israel during the Yom Kippur War. This action led to a quadrupling of oil prices, causing fuel shortages and a massive spike in inflation in the U.S. and globally.

• Impact on Inflation and Consumer Spending: The sharp rise in oil prices led to increased costs for consumers and businesses, accelerating inflation. High energy costs squeezed consumers' disposable income, leading to reduced spending and slowed economic growth.

2. Stagflation

• Combination of Inflation and Unemployment: The U.S. economy entered a period of stagflation—a rare and challenging economic environment where inflation is high, but economic growth is stagnant, and unemployment is rising. This made the situation difficult for policymakers, as the usual tools for addressing inflation (like raising interest rates) could worsen unemployment, while measures to stimulate growth could further fuel inflation.

• Monetary Policy Challenges: The Federal Reserve faced significant challenges in balancing inflation control with economic growth. High inflation eroded real incomes and profits, hurting both consumer spending and corporate earnings, which weighed heavily on stock prices.

3. Stock Market Crash

• Major Market Decline: Between January 1973 and December 1974, the S&P 500 lost nearly half its value, declining by about 48%. The Dow Jones Industrial Average (DJIA) fell from over 1,000 points in early 1973 to below 600 by December 1974.

• Widespread Loss of Confidence: Investor confidence was further shaken by factors like the Watergate scandal, which created political uncertainty and fueled fears about government stability and economic policy. This contributed to a broader crisis of confidence in the stock market.