Key Takeaway
This year has been fantastic so far, and now it appears we are beginning a slow patch...or is it something more? Of course, we won't truly know until we look backwards after it happens. However, for the last several months, I've been blowing the horn of caution regarding the stock market, especially as it relates to the yield curve and the basing unemployment figures. Below is the most recent Fed statement and highlighted in RED are the changes when compared to their previous statement. Highlighted in YELLOW, you'll see the two main areas that are, to me, most important. 1) Job gains went from "remained strong" to now "moderated"; and 2) The Committee has reduced their sole attention away from "inflation" to now attention to "both sides of their dual mandate" - which is BOTH: inflation and full employment. This tells me that they are now concerned with and closely monitoring the employment numbers.
In the chart below, you will see that unemployment has bottomed (post Covid era) and is beginning to rise. When comparing the historical employment numbers to the S&P 500, you will see that when unemployment rises, the stock market struggles and vice versa. Therefore, it will be incredibly important to monitor the employment numbers moving forward to help find the market's potential trend or direction. Unemployment rose this reading from 4.1% to 4.3% - so is not heading in the right direction. As a result, we will begin to selectively reallocate some of our portfolio positions in order to help reduce potential downside market risk.
