A Market Flat as Kansas and the Biden Crack Economy Coming Off a High

Peter Navarro’s Economy and Market Wrap for Week Ending September 1, 2023

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The stock market began the week with yet another one of those bullish bumps on light volume but ended the week mildly up to flat.  To wit: The S&P 500 gained 0.8% last week and the Nasdaq was just about flat for the week. 

Here’s what caught my eye:

First, GDP numbers came out last Wednesday and here’s how MarketWatch reported it (a little artistic license):

The U.S. grew at a somewhat slower 2.1% annual pace in the second quarter marked down from an initial 2.4%. The rise in gross domestic product in the spring is likely to give way to a robust reading in the third quarter ending in September. GDP forecasts estimate growth of 2.5% or higher.

However, a slowdown toward the end of the third quarter might even be underway. Some parts of the economy such as housing and manufacturing are struggling and adjusted pretax corporate profits fell slightly in the second quarter to mark the third decline in a row.

Now let me translate: The economy has been growing faster than expected because it has been injected with a speedball of Keynesian stimulus.  However, inexorably, rising interest rates are choking off key parts of the economy like housing and manufacturing and adjusted pretax corporate earnings continue to fall auguring bad news for the market bulls.

What the best analogy?  How about this:

You ever watch a meth freak or crack addict come down off a high?  That’s what the Joe and Hunter Biden economy is beginning to look like.  Yea, I know, a bit of a cheap shot at Hunter but I can’t get those pictures from his laptop out of my head.

Oh, and did I mention, again from Market Watch, “A measure of U.S. growth based on income, known as GDI, suggests the economy grew just 0.5% in the second quarter. So second-quarter growth could get marked down again.”

Of course, the second thing of note that came in on Friday was the jobs report.  It showed that the U.S. created 187,000 new jobs in August.  However, new hires were below 200,000 for the third month in a row – a sign of a labor market beginning to feel a cold breeze. 

Meanwhile, the unemployment rate popped up its highest level in more than a year to 3.8% from 3.5%, in part on a rise in the labor force participation rate.  Winter is coming.

Interestingly, the market popped up Friday on the news, with the old Wall Street saw that this bad news would stop the Fed from hiking rates in September.   But this glow faded by market close as some grimmer realities are settling in.

My bottom line: Cash remains king.  It was a bad week shorting the S&P 500 but a speculator using the exchange traded fund SPXU for such a short as I ruminated on three weeks ago would still be well in the green.

Risk remains to the downside as we enter the stock market’s historically cruelest two months in September and October.

Last take: The inflation-fighting strategy of Joe Biden and Jay Powell remains choking off the economy to drive up the unemployment rate and drive down both real and nominal wages.  Black, brown, and blue collar Americans and Main Street take the brunt of the hit while Wall Street plays the market.

Okay, that’s it.  Enjoy the Labor Day weekend and let’s all say a prayer for the memory of Jimmy Buffett – kind soul who brought many joy.

In the meantime, please take advantage of the free coupon for my Strategic Macroeconomics course.  It’s a benefit for my substack and podcast followers and you can find the link at the substack at www.peternavarro.substack.com   That’s www.peternavarro.substack.com  

Peter Navarro.  Out.

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