Bitcoins and Bonds and Bears, Oh My!

The market has traded down ever since Fed Chair Powell was at the conference in Jackson Hole. The HCM-BuyLine® has weakened and we had some stops hit which further reduced our exposure to equities. While trading this market you will have to be fast, and your expectations should be for small gains if you’re a shorter-term trader. We are holding a lot of cash, and patience is a virtue in markets like this. This market is not much different than any other bear market we have had to work through, with one exception being bonds. The bond market is getting clobbered, and I don’t see any reason for that to stop any time soon outside of some short-term relief rallies. Our fixed income/bond fund HCM Dynamic Income is approximately 87% in cash. We barely own any bonds at the moment. Bonds used to be a great place to trade when the stock market was doing poorly, but not anymore. The 20-year treasury ETF (TLT) is down a whopping 26%, and that is government-backed bonds.

Bitcoin is down and looking to test support in the 18210 area. If this area of support is broken, you could see Bitcoin sell off to the 12500 area, and I would not be surprised if that happens. This has been a breathtaking drop from around 67000, to where it is now at 18920. We do not own any Bitcoin currently and when we have, we have used ETFs and been very quick to take profits.

Nonfarm payrolls expanded by 315,000 in August, in line with expectations of 318,000 and 20,000 below our forecast. But the prior two months were revised down by 107,000, for a net gain of 208,000, bringing payrolls back to trend. The workweek ticked down by 0.1 hour. Average hourly earnings rose 0.3%, below the consensus of 0.4%. That left the y/y change at 5.2%, below forecasts of 5.3%. The unemployment rate rose to 3.7%, above the consensus and our forecast for an unchanged reading of 3.5%, and above all economist forecasts. That’s because the participation rate rebounded from 62.1% to 62.4%, matching the March high for the year, and was above our estimate of 62.2%. Although these are welcome signs of cooling in the labor market, they are not sufficient to deter the Fed from a more aggressive 75 bp hike later this month should the CPI report come in line with expectations.
June payrolls were revised down by a rather large 105,000. Typically, you don’t see such a large downward revision in the middle of strong jobs growth. In fact, the downward revision between the second and third prints for that month was the most since March 2020, which was the biggest since the start of the GFC in September 2008 when the labor market was already hemorrhaging jobs. In the establishment survey, private payrolls increased 308,000, the fewest since April 2021, and below the 443,000 average gain the first seven months of this year. While this indicates a notable moderation in payrolls growth, it is far from recession territory.