Will The Bull Market Break?

Every Friday we host a live 1:1 discussion at 12pm EST. 

This gives YOU the opportunity to ask US any questions you have on the markets, the economy, crypto, and more!

Here are the 4 key things we went over: 

• The interesting mixed bag of housing data we got last week

• The troubling macro signs coming from China's most recent population report

• How layoffs are affecting our tech outlook

• Why crypto is showing us some encouraging signs for the broader market

If you'd like to listen live and ask us questions throughout the next live session, just join the weekly Friday afternoon session at 12:00pm EST.

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Meanwhile, instead of a full transcript, here's a more compact summary of what went down last week and what we're looking forward to in the week ahead.

If you want the full version, just listen to the audio recording!

Overview:

Until we get to the Fed meeting next week, the market is simply reacting to more noise than signal trying to figure out how Jerome Powell is gonna play interest rates in 2023. 

We had an encouraging CPI two weeks ago, and all other data points from this week are also pointing in an encouraging direction.

But until we get a sense of how aggressive the Fed thinks it needs to be, we won't know where the overall market is headed this year. 

Housing all had good signs, with mortgage rates and home sales both down.

But the fact that housing starts are also decreasing raises some concerns. Most home builders estimate that 2023 is going to be a big year for construction with a full recovery in the second half -- so maybe housing starts declining isn't that big of a deal. 

Layoffs were concerning, but explainable. We need much more data before we can call this the start of a recessionary period -- should one actually be on the way.

So all-in-all, this week was a mixed bag of signals.

Let's comb through some of the bigger ones and see if we can make sense of all of this.

Layoffs Aren't a Bad Sign:

Between Microsoft, Amazon, and Google, over 40,000 tech workers were laid off last week, bringing the total white-collar culling to over 200,000 workers in the last few months.

These layoffs are nothing new and make sense in the grand scheme of the market. Tech firms are forced to overhire during boom periods like the beginning of 2021 in order to grow as fast as possible and keep up with the competition.

As soon as the Fed started raising interest rates, they basically shut off the growth engine of that entire sector of the economy.

We had a few good months while Big Tech tried to make those massive hiring sprees profitable, but inevitably there need to be cutbacks to keep that growth profitable. 

This is the dangerous part of the game Jerome Powell is playing. By trying to keep inflation in check, the Fed is raising rates to destroy demand.

If there are too many layoffs like this, spending will go down too fast, which will lock up the market even more. That would lead to a slowdown in money flows severe enough to sink us into a full-blown recession. 

So the goal is to slow demand just enough to achieve JPowell's 'soft landing' -- killing demand without breaking the whole economy.

These layoffs feel more like a correction right now than the start of a bigger slide. Tech firms are simply getting staff back to levels that make sense for the current slow-growth competitive model. 

These tech workers will more likely get shuffled around the broader economy as we inch toward a recovery. 

But again, we won't know how bad things will get until we get a better sense of how far the Fed wants to take this thing. 

So we're going to watch the FOMC meeting at the end of this month really closely (just like the rest of the market) to see if Jerome Powell is feeling like there's an end in sight here. 

The Macro Environment is Getting Weird:

One big data point that got largely ignored last week was the fact that China's population fell for the first time since 1960.

Down 850,000 people since 2021, China hasn't had a population decline like this since Chairman Mao was in power.

This is a huge sign moving forward since China needs to maintain robust population growth if they are going to continue its upward trajectory.

Right now, India is on pace to surpass China by 2030, and Africa as a whole is set to surpass both of them across the next century.

Is the 21st century the moment when China finally ascends as the biggest world power or will they get leap-frogged by India and a few ascendant African nations? It's honestly a wild shift from the current zeitgeist. 

A shift like this doesn't change our current investment thesis for our Chinese holdings, but it definitely incentivizes our analyst team to look more into Indian and African firms as we look for more long-term plays.

Expect more on this from us as the year develops. 

Wrapping this Up:

Ultimately, this week is showing us a market with more signs of strength than weakness.

We're really encouraged by housing data and the current bull sentiment hitting the crypto space.

Make sure you listen to the whole recording to get a better sense of the nuance that's powering these big trends.

This week, gear up for a tumultuous earnings season really kicking into high gear. It's time to separate the real players from the weak stragglers.

Be sure to tune into our next recording at the end of the week as we discuss the winners and losers from one of the biggest slates of earnings we'll have for this whole quarter.