Darius recently sat down with Maggie Lake to discuss the energy sector, the labor market, the resiliency of the U.S. economy, and more.

If you missed the interview, here are three takeaways from the conversation that have significant implications for your portfolio: 

1. The 42 Macro Weather Model Suggests Investors Should Be Operating With Average-to-Below Average Position Sizes Across All Asset Classes Except Cash

Our 42 Macro Weather Model projects the three-month outlook for stocks, bonds, the dollar, commodities, and Bitcoin by analyzing specific indicators within the following ten components of macro:

  • Growth
  • Inflation
  • Unemployment rate
  • Corporate profits
  • Fiscal Policy
  • Global Liquidity
  • Credit
  • Interest Rates 
  • Fear
  • Greed

Currently, the Weather Model indicates a neutral three-month outlook for stocks and bonds and a bearish three-month outlook for the dollar, commodities, and Bitcoin. 

Our daily systematic scoring of key fundamental and technical indicators suggest this is not a great time to be taking a lot of risk in financial markets.

2. The August Jobs Report Will Likely Perpetuate Additional Right-Tail Risk In The US Equity Market Specifically

In the August jobs report:

  • Private Sector Employment accelerated to 2.3% on a three-month annualized basis.
  • Private Sector Average Hourly Earnings decelerated to 3.9% on a three-month annualized basis, right around the pre-covid trend.
  • Private Sector Average Weekly Hours accelerated to 0.0%, the highest reading since March.
  • Private Sector Labor Income, the broadest measure of wages and salaries the labor market produces, accelerated to 6.2% on a three-month annualized basis.

In its current “Goldilocks” state, the labor market is too hot to spark further tightening from the Fed but too cold to raise recession fears. 

We can persist in this state for several months, which may create additional right-tail risk in the equity market as underperforming professional investors stare down career risk heading into yearend.

3. Near Record Cash on Household Balance Sheets Is Supporting The Resiliency of The US Economy

Our Cash on Household Balance Sheets calculation tracks the Federal Reserve, flow of funds, checkable deposits, and money market fund exposure for both the household and corporate sectors.

The household sector maintains 3% of total assets, or $4.5 trillion, in checkable deposits – approximately $3 trillion more than its pre-COVID values.

The corporate sector checkable deposits also sit around 3% of total assets as well. 

Including money market fund exposure, we are currently witnessing the highest levels of cash on the private sector balance sheet as a % of total assets since the 1950s.

That’s a wrap! 

If you found this blog post helpful:

  1. Go to www.42macro.com to unlock actionable, hedge-fund-caliber investment insights.
  2. RT this thread and follow @42Macro and @42MacroWeather.
  3. Have a great day!