A Cross that's tough to Bear -

Investors have celebrated an odd development - rising unemployment. The economy has been resilient throughout the year as excess household spending from Covid stimulus has allowed consumer spending to stay strong to date.

A sign that demand is weakening first came in earnings season. There was a large increase in company CEOs citing "weakening demand" on earnings calls this past quarter. That is all the more concerning because CEOs don't like to be negative on a call. They will spin things to a positive outlook if at all possible.

A second sign of demand stumbling could be in the unemployment rate ticking up. After all, you are probably not looking to let people go if demand is booming.

But this particular tick up is more concerning. When the unemployment rate crosses above the 2 year moving average, recession always follows. Yes, always.

So that is a pretty strong sign that we are likely to see a recession soon. Rising unemployment also creates a vicious feedback loop where losing your job means less money to buy things. And if you're not buying, then company profits are lower, and lower demand and profits mean more layoffs. Etc.

I also think a lot of companies have also been unwilling to start layoffs due to the scarcity of labor during Covid. As unemployment ticks up, it's a sign that more companies are willing to take that risk because demand has fallen so much. This could lead to a faster surge in unemployment as others jump on the bandwagon.

So while I agree the Fed is probably done raising rates, the reasons why that is the case aren't reasons to celebrate. Imo.