Normally the Holiday Season is a time for high economic activity. The official kicking-off of Christmas shopping with the completion of Thanksgiving rolling directly into Black Friday, it’s no wonder why economic activity in consumer discretionaries is characteristically high at this time of the year. Add with that: those of you that are like myself (workaholics), mix us with the average procrastinator, throw in a hefty scoop of moms & dads that are busy working multiple jobs and have to buy last-minute, and we get the nice and hot pie that is Holiday Season consumer discretionary spending. For a breakdown of what is encompassed in this sector, click the image below to get taken to Investopedia’s definition and elaboration.
The point of bringing this up is around the outlook for markets, obviously. With much of the market seemingly heavily split, between “it’s not that bad” to “it’s pretty damn bad.” In my personal experience, if you have to say it’s not that bad, then it’s certainly not good, likely even bad.
Anecdotally, I’ve been seeing quite a bit of activity on fintwit and the interwebs (like the image below) stating that the US economy ‘is stronger than the doomers would have you believe.’ On November 10th I shared a tweet that reflected my personal beliefs on just how strong the US economy is.
Personally, I think that consumers will likely limit their spending in last-minute decisions more than the market wants to believe. But hey, if I’m wrong, it just means I get to learn why. BUT, I’m going to operate as if I’m correct until proven otherwise.
Continue reading below to hear me out.
We’re in an environment where Consumer Debt is hitting ATH’s, and Personal Saving Rate is at a level that is an ant’s hair above the lows leading into the 2008 Global Financial Crisis.
Just these two metrics ALONE suggest an economic environment of heightened fragility. When you take a system and increase the volatility, while the environment is getting increasingly polarized, you get a recipe for fragility.
Before continuing I would personally like to recommend a few stacks that I personally enjoy, you can also find these in my “Recommended” section on TDD’s page. I’m personally a fan of avoiding echo chambers, so while these rec’s may come off as similarly aligned we do all still have our differences of opinion and forecast(s).
Now, let’s get back to it.
And Then There’s Shipping
Here in the soon-to-be-frozen fields of Iowa, I’ve not only been graced with extensive familial connections to the blue collar world, but I’ve also got friends involved in the trucking industry. Particularly on the logistics side. And we’ve been having conversations consistently since the start of summer over the disconnect between activity in trucking and what the MSM outlets and fintwitters claim.
The margins on rates have been compressed down to effectively nothing. Giving operators very little, oftentimes zero, wiggle-room when bidding for contracts. This also means that profit margins have been aggressively castrated.
The next natural move for companies is to pass these costs on down to their employees; trying to squeeze as much value out of their workers as possible. Before either passing on costs to customers, or limiting their bidding behavior. Meaning that the volume of access to quality distribution is likely going to wane, as retailers are also cutting back on employment, in order to reduce liabilities heading into the Land of Difficult that we are steamrolling towards.
…Then There’s Charts
The S&P 500 is currently trading in a range where it is trapped between the 50 & 200 EMA’s, with the 50 acting as resistance and the 200 as support (with the 200 having been tapped 2x, and being broken-below on the 2nd touch). What this says to me is that the 50 has decent resistance strength with the 200 acting as a weak support.
In the 7 blocks of time, from the start of Thanksgiving week through to the first week of January, running back to only 2015, the $SPX has returned an average return of ~3.35%. Just from the Technical Analysis alone, I don’t see any reason why equities should rally from here — hover right at the 50 EMA resistance.
Conclusion
Lastly, there’s the lay-offs. Lay-offs have been the name of the game for 2022, with Amazon, Facebook, Twitter, Ford and Intel alone totaling nearly 120,000 since this past summer.
With cost of energy on the imminent rise, between the looming demand that Europe will generate once this unusually mild winter manifests demand for LNG exports, the US’s dwindling SPR levels, employers being squeezed from every angle…I don’t see any reason, or justification, to claim that the US Economy is ‘strong’, let alone healthy. To that end, I also believe that right as demand begins to effectively get crushed (in the manner with which Jerome Powell wants to see) I am willing to bet that the plenty of jobs environment that has been available the past 12-18 months will whither away just as the consumer populace gets squeezed enough to change their past trending behavior. What does this mean?
I believe that just as living conditions get expensive enough to force those members of the labor force that have been on the bench through today, that these citizens will have a much smaller job market waiting for them than they may have gotten comfortable with. What this does is drag out time-to-employment for many, as well as cause budgeting practices to become stretched. With my expecting that this may get reflected in CC payment delays & delinquencies, and same goes for rents and mortgage payments. I would also expect the real effects of these dynamics to get delayed as I’m sure many will result to utilizing multiple CC’s to cover costs, effectively spreading-out the surface area of the impact. Also resulting in delayed consequences.
I personally believe that markets for the next few years will skulldrag the blindly bullish, and those that continue to believe we are still in the BTFD environment of the past ~20 years. And I believe that Q4 earnings will be either worse, OR on-par-with-bad (as much of the S&P is already expecting bad metrics for this winter, and leading into 2023). With concerns for 2023 staying centered around energy, livestock & crop yields (due to fertilizer shortages and access to fuel, including DEF), and likely a “surprise shock” coming from the health & insurance sectors.