Thanks to the selfless acts of the Philadelphia Phillies
In September, before the MLB playoffs began, Morning Brew tweeted a timely statistic.
The Phillies had clinched a playoff berth, and the stock market was crashing. This tweet seemed to be the writing on the wall that the Phillies would win the World Series and we were about to enter a financial crisis.
On Saturday, the Phillies lost the World Series to the Astros. Thus, there won't be a financial crisis; everything will be alright!
Unfortunately, correlation does not imply causation (tip of the cap to my econometrics professor for that one.)
So even though the Phillies lost, we will likely still see a recession.
Tech Layoffs
I debated writing an entire article on the current mass layoffs in the technology sector. I might still do so; in that case, I won't pour everything into this piece.
There wasn't even one big event that caught my attention.
Elon Musk was bound to cut jobs at Twitter once he took over. Meta has been struggling for a while. Those layoffs don't surprise me. $Meta Platforms, Inc.(META)$
Last Thursday (November 3rd), I saw several announcements surrounding layoffs. Lyft (13%), Stripe (14%), and Chime (12%) were all cutting their workforce. Three tech companies with the same announcement on the same day.
Below is a good snapshot; this isn't even all of them.
CNBC
There may be layoffs in other industries that I am unaware of, but tech has been getting all the attention. Maybe it's because their stocks are the highest growing or the companies are the most exciting.
It will be difficult for those getting laid off, and I sympathize with them. But this is exactly what the Federal Reserve wants. The below chart is telling; notice the downtrend?
CNBC
In short, the Federal Reserve wants the economy to cool off to lower inflation. For this to occur, they need people to stop spending money—the best way to reduce spending: cut off people's source of income.
Unfamiliar Territory
We've had low-interest rates for twenty years. How many CEOs of these tech companies, which thrive in low-interest rate environments, were even working in the corporate world the last time we had high-interest rates?
I'd guess not many.
Federal Reserve
The technology industry is different than other industries, such as energy or consumer staples. Technology companies are creating something new. They need low-interest rates and debt to grow. On the other hand, energy or consumer staples have highly inelastic products — meaning customers will need the product regardless of the economy — and are already established companies that don't require as much debt.
If you were running low on cash, would you spend your last dollars on a Peloton subscription or electricity for your house?
I can't speak to exactly what measurement the Fed looks at when accessing the labor market. Hopefully, they don't look only at the broad economy, but at individual industries. It's no secret that raising rates will impact technology companies before other sectors.
That's why I think this upcoming recession will be unique. Similar to the slowdown in 2020 — the hospitality and in-person entertainment got hurt the most. Now it's companies that built their business models on mass amounts of cheap debt.
Final Thoughts
The stock market is already down. YTD, the S&P 500 is down 20%, the tech-heavy NASDAQ is down 32%, but Vanguard's Consumer Staples ETF ($VCD) is only down 6%.
Most believe the market is in no man's land for the time being. Cash is being kept on the sidelines until the Federal Reserve signalsa slowdown in rate increases. I think that will be at the upcoming December meeting.
But outside of the stock market, the economy still has tough times ahead. Unemployment will rise — companies will have layoffs or freeze hiring. There will be less capital improvement spending, meaning a slowdown in activity, and the dollar will circulate less.
Concerning times are ahead. However, it won't be as bad as 2008 or devasting as some doomsayers are proclaiming.
I was in Philly last Saturday for game 6 of the World Series, the night they lost the series. If we avoid a recession, I'm giving all credit to the Phillies, not the Fed.
$S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $DJIA(.DJI)$ $QVC, Inc.(QVCD)$
Follow me to learn more about analysis!!
Comments