Relax, guy
The spooky Challenger Job Cuts number triggers a risk-off move.
Yesterday was not kind to the bulls; three job reports released a risk-off wave into the stock market.
The Challenger data was particularly spooky, with scary headlines like LOWEST JANUARY HIRING ON RECORD.
The Financial Times has the below article on its front page.
But the reality might be more nuanced. If you take the time to read the Challenger report (I did!), you will find that close to 46,000 jobs are linked to Amazon.
This is not new information to you if you read the latest macro update where I dove into the labor market:
Macro Update #34.1
First, I would like to apologise for not having written any macro update in the past month. It is a time-consuming exercise, and I was uber-focused on delivering the web app, which has a much higher impact on my immediate trading results.
Indeed, I highlighted an article from Bloomberg stating the job cuts from Amazon. And, importantly, the cuts are a result of both a re-normalization of the pandemic-era hiring binge and efficiency gains thanks to AI.
Looking at the JOLTS data, we also had some spooky headlines based on the falling job openings. But again, this is not a new trend; they have been falling since 2022. The important numbers to track are hirings and layoffs. On that basis, hirings are still stable.
And the difference between hires and total separations is still at equilibrium. I am still not concerned about the health of the job market.
The most timely job data we have are the initial claims. Yes, we saw some kind of spike.
But we are closely following the seasonal pattern; there is absolutely no reason to be worried here.
Finally, the hard job data we can track is the US Treasury receipts for Withheld Income and Employment Taxes. Bill did the work for us, so I don’t even need to refresh my tables; the pace of collection is solid.
Based on this quick analysis, I am 100% fading this risk-off move based on the job data yesterday.
Of course, the market has been selling off for other reasons in the past week. The main narratives I am seeing:
Mag7 capex will eat into buybacks, removing a key flow for the market.
Warsh’s nomination is bad for risk assets.
The SaaSpocalypse is a risk for the market.
Bitcoin is an early sign of disappearing liquidity.
Historically, there is no evidence that decreasing YoY buyback notionals is negative for the S&P 500. I can count 10 different years where buybacks decreased, and only 3 years had negative S&P 500 yearly returns: 2001, 2002, and 2008. Post-dot-com bubble and GFC. We also forget that the 493 other companies of the S&P 500 are mostly estimated to increase buybacks.
Anna Wrong must be very short SPX, or very long bonds. She is really digging very hard into Warsh’s previous interviews.
But gladly we have more serious sources of information.
Warsh found the perfect excuse to keep rates low and please Donald: AI productivity boom. You might believe in it or not. It doesn’t really matter. What matters is that the Fed’s reaction function will remain dovish. And that is supportive of risk assets. I am 100% fading the Warsh narrative being bad for asset prices.
With AI capex still increasing and beating estimates, paired with a fiscal deficit running at 6% of GDP and bound to increase in H1-2026, I am quite confident that we will not see any recession this year.
