Business Frame Weekly – Job market is finally cooling off, which could mean either a welcome return to normal or the beginning of a slide into recession./ Gold rises as dollar, yields slip after US jobs data

The overheated job market is finally cooling off, which could mean one of two things: either a welcome return to normal or the beginning of a slide into recession.

Leon Cooperman has called out the speculative mania around Nvidia and other popular stocks, and warned the US economy could slump into recession next year.

US stocks' best first-half run since 2019 was just a sentiment-driven rally "devoid of fundamentals" – and it's only a matter of time before the trend gives way thanks to the Federal Reserve's interest-rate increases, according to David Rosenberg.

In this newsletter:

• This week in Bidenomics: The president vs. the business cycle
• Billionaire investor Leon Cooperman sounds the alarm on Nvidia stock - and warns a recession may hit next year/a>
• The US stock rally has no fundamentals and Fed rate hikes will 'break the back' of something in markets, top economist David Rosenberg says.
• Momentum and FOMO can drive stocks even higher - but the buying frenzy might end abruptly, Wharton's Jeremy Siegel says
• Fed’s Goolsbee sees ‘golden path’ to lower inflation without a recession
• Gold rises as dollar, yields slip after US jobs data

July 11, 2023

This week in Bidenomics: The president vs. the business cycle

Much of the nation is baking. But the overheated job market is finally cooling off, which could mean one of two things: either a welcome return to normal or the beginning of a slide into recession. The 2024 presidential election could turn on the outcome. Biden is basically in a game of chicken with the business cycle. One tolerable scenario for him would have been to get a mild recession over and done with in 2023, so a recovery would be well underway as the 2024 elections hit the home stretch. That now seems unlikely to happen. So Biden has to hope there’s no downturn at all for the next 15 months. He can’t really control that, of course. The Federal Reserve can, to some extent, and it’s not necessarily on Biden’s side. The Fed has already raised interest rates by 5 percentage points since last March, and it may push rates a bit higher still to assure it gets inflation back to the 2% range it prefers. Such rapid monetary tightening is supposed to crimp hiring and maybe even reduce employment. It hasn’t, yet. So the odds are maybe 50-50 that the Fed will push interest rates a bit higher by the end of the year. If Biden were Donald Trump, he’d surely be blasting the Fed for trying to deflate the labor market and kneecap economic growth. But Biden is the economy’s chief cheerleader, crisscrossing the nation on a kind of whistle-stop tour to tout new factories, brag about job growth, and remind voters that inflation is coming down.

Billionaire investor Leon Cooperman sounds the alarm on Nvidia stock - and warns a recession may hit next year

Leon Cooperman has called out the speculative mania around Nvidia and other popular stocks, and warned the US economy could slump into recession next year. "We know that Nvidia's not going to end well," the billionaire investor said during an interview at The Ben Graham 10th Annual Conference on June 20. Nvidia's shares have nearly tripled in price this year, boosting its market capitalization to a record $1 trillion, as investors wager the microchip maker will be a big winner from the artificial-intelligence boom. "I've learned over the years that everything ultimately turns to shit, and the fall from 200 times earnings is a lot harder than the fall from eight or nine times earnings," Cooperman said, referring to Nvidia's current valuation. He noted that former stock-market darlings like Cisco have never reclaimed the breathless highs they reached during the dot-com bubble. The Omega Advisors founder, and former head of Goldman Sachs' asset-management division, bemoaned the general state of madness that investors are in today. "There's a lot of crazy things going on in the market," he said. "I've never seen moves on such insignificant news as we're seeing in the market today," he continued, partly blaming the volatility on quantitative traders who "know everything about price, know nothing about value." Cooperman attributed the rally in stocks this year — the S&P 500 has climbed 15%, while the Nasdaq 100 has surged 38% — to a major upswing in positive sentiment, not fundamentals such as larger corporate profits.

The US stock rally has no fundamentals and Fed rate hikes will 'break the back' of something in markets, top economist David Rosenberg says.

US stocks' best first-half run since 2019 was just a sentiment-driven rally "devoid of fundamentals" – and it's only a matter of time before the trend gives way thanks to the Federal Reserve's interest-rate increases, according to David Rosenberg. The S&P 500 index jumped almost 16% in the six months through June, buoyed by investor excitement over artificial intelligence and bets that the Fed is close to ending its policy tightening. The gauge slid 19% in 2022 as the central bank's rate increases – aimed at taming inflation – undermined investor sentiment. However, equities' rebound this year was driven more by "sentiment and momentum" rather than better economic prospects, Rosenberg said in a CNBC interview Thursday. The veteran economist has long been bearish on the US economy, warning a recession has already hit US corporate profits, and that stocks will plunge back into a bear market when a broader downturn sets in. "I don't know if the market is telling you anything about earnings, anything about the economy. It's been a sentiment and momentum-driven market, I think rather devoid of the fundamentals. And at some point, the Fed's tightening, which is unending, is going to break the back of something," he told the outlet.

Momentum and FOMO can drive stocks even higher - but the buying frenzy might end abruptly, Wharton's Jeremy Siegel says

Investors are brushing off the prospect of higher interest rates and piling into stocks, but the buying frenzy might end abruptly, Jeremy Siegel has warned. "The market is currently prioritizing the strong economy over fear of the Fed," the retired Wharton finance professor said in his weekly WisdomTree commentary, published on Wednesday. "We will see how long that can last." The Federal Reserve's battle against historic inflation has centered on raising interest rates from nearly zero last spring to north of 5% today, and the US central bank has penciled in a couple more hikes this year. Higher rates boost the appeal of bonds and savings accounts relative to stocks, and typically erode corporate profits by increasing companies' interest costs and curbing demand from consumers and businesses. As a result, they tend to pull down the prices of stocks and other risky assets. However, the US economy has proven resilient to the Fed's hikes, with growth and employment both holding up in recent months. Investors are betting on stocks because they believe the US can escape a recession, and companies can withstand the pressure of higher rates. Siegel questioned why the Fed is still pressing forward with rate hikes even though inflation has dropped from a high of 9.1% last summer to 4% in May. He suggested that Fed officials may believe a buoyant economy will fuel inflation, even though current prices of oil and other commodities don't support that view. "What surprises and disappoints me … is that the Fed continues to escalate its tightening and hawkish stance," he said.

Fed’s Goolsbee sees ‘golden path’ to lower inflation without a recession

Chicago Federal Reserve President Austan Goolsbee said Friday he’s confident inflation can be tamed without a recession, even with additional interest rate increases likely. Speaking to CNBC following the release of the June nonfarm payrolls report, he said the ongoing job growth is part of the Fed’s “golden path” toward restoring price stability without taking the economy. “What the Fed’s overriding goal right now is to get inflation down. We’re going to succeed at it and to do that without a recession would be a triumph,” Goolsbee told CNBC’s Steve Liesman during a “Squawk on the Street” interview. “That’s the golden path, and I feel like we’re on that golden path. So I hope we keep putting off the recession to forever. Let’s never have a recession again.” Economists, including those working at the Fed, see credit contraction leading to at least a modest recession later this year or early in 2024. However, one of the economy’s key cogs, the jobs market, is showing only slight signs of slowing down. Payrolls grew by just 209,000 in June, below Wall Street estimates, but an unemployment rate at 3.6% suggests a resilient economy. “Overall, the jobs market is outstanding and is getting back to a balanced, sustainable level,” Goolsbee said. Inflation, though, has remained stubbornly high and well above the Fed’s 2% goal.

Gold rises as dollar, yields slip after US jobs data

Gold prices rose on Friday and were on track for their first weekly gain in four as the dollar and bond yields fell after weaker U.S. nonfarm payrolls numbers cast doubts over the trajectory of interest rate hikes beyond July yet again. Spot gold was up 0.8% at $1,926.54 per ounce at 2:06 p.m. EDT (1806 GMT). Bullion was up 0.4% so far this week. U.S. gold futures settled 0.9% higher at $1,932.50. Labour department data showed nonfarm payrolls came in well below expectations last month, but the unemployment rate retreated from a seven-month high amid fairly strong wage gains. Benchmark 10-year U.S. Treasury yields retreated from a more than four-month peak, while the dollar slipped 0.9% to a more than two-week low after the data, making gold attractive for other currency holders. Traders stuck to bets the Fed would raise interest rates this month, but were becoming more skeptical of the chance for hikes beyond that. “Gold remains stubbornly bid - trading higher even before the number. Today’s report has given bulls some relief, at least short term,” said Tai Wong, a New York-based independent metals trader.

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