Wall Street slips on a high probable Trump Trifecta 2.0

·         Overall, despite tax cut appeal, Trump may be negative for US MNC blue chips for trade war tantrum and policy uncertainty; Gold may also slip

·         Assuming 175K likely temporary lost jobs due to dual cyclones, Boeing strike, and US election, NFP job addition should be around 190K instead of 12K

·         Fed set to cut -25 bps in November and December to stay ahead of the curve despite stalled core disinflation and a stable employment situation

·         Fed is cutting rates back-to-back as Fed may quicken QT tapering to close the same at around $6.75-6.50 Fed B/S levels by Dec’24-Mar’25

The Oct’24 US NFP/BLS job report may be distorted due to dual cyclones, lingering Boeing strike, and ongoing US elision. Overall, as highly expected, after the unusual White House warning well in advance Wednesday, on Friday the Oct’24 NFP payroll job addition comes at +12K; private payroll job contracted to -28K, while Government payroll added +40K jobs. In Oct’24, US Private payroll jobs contracted -28K due to the disruptive effect of dual Cyclones (Helene and Milton by around 100-200K), the US election (many workers may be now politically active), and also ongoing Boeing Labor Union strike (around 40K).

The Oct’24 US NFP/BLS job report revealed a temporary significant slowdown in job growth, with only 12K jobs added, the weakest performance since 2020 against an average of +200K. The Oct’24 U.S. non-farm payroll (NFP) report by BLS may have been negatively affected by several significant and overlapping transitory/quantitative factors, including adverse natural disasters (dual cyclones), Boeing strikes, and US election uncertainties.

Dual Cyclones (Helene and Milton):

·         Business Disruptions: The dual cyclones likely led to significant, short-term (temporary) business disruptions, especially in affected regions. Companies in sectors like retail, hospitality, transportation, and manufacturing may have had to halt operations temporarily, leading to a decline in both hours worked and overall employment numbers.

·         Infrastructure Damage: Cyclones cause infrastructure damage, which can impact commuting patterns, supply chains, and local businesses. Regions heavily impacted by the storms might see temporary layoffs, particularly in industries dependent on local infrastructure, such as warehousing and logistics.

·         Quantitative Impact: Natural disasters historically reduce monthly job numbers by tens of thousands. In 2017, for example, Hurricanes Harvey and Irma were estimated to have reduced employment by around 100K jobs in the affected months. Similarly, Helene and Milton may have subtracted between 50K-100K jobs from October’s NFP report, though much of this could be temporary.

Boeing Strike:

The ongoing strike at Boeing, which has seen around 33K workers walk off the job for several weeks, has also had a profound effect on the labor market. The strike has not only halted production of key aircraft models but is estimated to be costing Boeing approximately $50 million per day. This disruption has led to a significant reduction in new aircraft deliveries, affecting related jobs in manufacturing and supply chains. Various data/analyses suggest that the almost 2-weeks Boeing strike could have subtracted as many as 80K jobs from the NFP figures due to its extensive impact on both direct employment at Boeing and indirect effects on suppliers and service providers.

·         Direct Loss of Manufacturing Jobs: Boeing is a major employer in the U.S. manufacturing sector, and any large-scale/lingering strike directly impacts the overall sector's employment numbers. In late 2024, a prolonged Boeing strike would mean thousands of workers off payroll temporarily, negatively impacting the manufacturing employment figures directly and indirectly.

·         Ripple Effects Across Supply Chains: Boeing’s production halt would impact suppliers, from small component manufacturers to transportation firms that rely on its production continuity. This creates a multiplier effect where employment reductions cascade down the supply chain, possibly resulting in an additional few thousand jobs lost indirectly.

·         Quantitative Impact: Historically, strikes in large manufacturers like General Motors (GM) or Boeing have been estimated to reduce monthly job growth by around 40-80K jobs. The Boeing strike alone may have reduced October’s NFP by about 40K jobs directly, with indirect impacts potentially increasing this number to around 80K.

U.S. Election Uncertainty:

·         Temporary Business Hiring Freezes: With a vital presidential election imminent, and possible Trump 2.0 (policy uncertainty) many business houses may adopt a ‘wait & watch stance, delaying/postponing new hiring until there’s greater clarity on policies. Concerns around changes in regulation, taxation, or labor laws often make companies hesitant to expand their workforce. But the incumbent government may have also accelerated government hiring in their respective jurisdictions (Federal/State/Local)

·         Investment (Govt + PVT CAPEX) Slowdown: Major investment decisions are sometimes postponed during election periods, leading to a reduction in job openings in sectors like finance, real estate, and construction. An uncertain policy environment can deter investments that would otherwise lead to job growth. Also, there may be some regulatory issues prohibiting any major Govt. CAPEX announcement by the Government during the election process

·         Many US workers may be politically active during the election process and volunteering for their favorite party; also during the election period, political parties offer employment, which may not be counted by the BLS.

·         Quantitative Impact: While the effect of election uncertainty is more diffuse, it can shave several thousand jobs from monthly growth figures. In previous election years, such as 2016 and 2020, job growth often slowed by 10K to 30K jobs per month in the lead-up to elections due to delayed hiring and investment.

Probable combined Quantitative Effect of several transient factors on the October 2024 NFP Report

The overall quantitative impact on the Oct’24 US NFP report may be:

·         Cyclones Helene and Milton: 50K-100K ~75K jobs

·         Boeing Strike (direct & indirect): 40K-80K ~60K jobs

·         US Election Uncertainty: 10K-30K ~20K jobs

In Oct’24, the estimated total negative impact for various transitory factors on the US NFP/BLS job report may be around 100K-200K; i.e. around 150K NFP jobs. As par Oct’24 ADP Private payroll job addition data of +233K and JOLTS NFP job addition trend, the BLS report may show around 250-350K or more payroll job addition in the Nov’24-Dec’24 report to close CY2024 around 200-225K NFP jobs on an average.

BLS explanation about impact of Hurricanes Helene and Milton on US NFP/BLS job report for Oct’24

“Hurricane Helene made landfall on Florida’s Gulf Coast on September 26, 2024, and then tracked north into several other states. This was before the October reference periods for both the household and establishment surveys. Hurricane Milton struck Florida on October 9, 2024, during the reference periods for both surveys. Before the storm’s landfall, there were large-scale evacuations of Florida residents. In October, the household survey was conducted largely according to standard procedures, and response rates were within normal ranges.

The initial establishment survey collection rate for October was well below average. However, collection rates were similar in storm-affected areas and unaffected areas. A larger influence on the October collection rate for establishment data was the timing and length of the collection period. This period, which can range from 10 to 16 days, lasted 10 days in October and was completed several days before the end of the month.

No changes were made to either the establishment or household survey estimation procedures for the October data. Payroll employment estimates in some industries were likely affected by the hurricanes; however, it is not possible to quantify the net effect on the over-the-month change in national employment, hours, or earnings estimates because the establishment survey is not designed to isolate effects from extreme weather events. There was no discernible effect on the national unemployment rate from the household survey.”

The U.S. private Average Hourly Earnings (AHE) was around $35.46 in Oct’24 vs $35.33 sequentially (+0.4%) and $34.10 yearly (+4.0%); i.e. the U.S. AHE grew +4.0% yearly in Sep24, in line with the market expectations +4.0% sequentially, above the market expectations of +3.8% (y/y) and the highest in five months. Fed may be looking for an average annual growth rate of AHE around 3.00% on average against its +2.0% price stability (inflation) targets (as per the pre-COVID trend) so that there is some real wage growth, but may not cause wage inflation spiral. The average AHE growth for 2024 (YTM) was around +4.0% against +4.5% in 2023.

On a sequential (m/m) basis, the AHE grew by +0.4% in Sep’24 against +0.3% in the previous month, and line with the market expectations of +0.3% gain. The Fed needs an average sequential AHE growth of around +0.2% consistently for its price stability targets; while the 2024 average was around +0.3%, almost the same in 2023.

The Average Weekly Hours (AWH) for all employees on U.S. nonfarm payroll was unchanged at 34.3 hours in Oct’24 from 34.3 hours sequentially (m/m), 34.3 hours yearly (y/y), and above the market expectations of 34.2 hours. Average Weekly Earnings (AWE=AWE*AWH) edged up +0.4% to $1216.28 in Oct’24 from $1211.82 sequentially, while increasing +4.0% yearly from $1169.63. This translates to average monthly earnings (AME) of around $4865.11 in Oct’24 against $4847.28 sequentially (+0.4%) and $4678.52 yearly (+4.0%); i.e. the US AME grew +0.1% sequentially (m/m) and +4.0% yearly (y/y) in Oct’24.

The average monthly growth of U.S. AME for 2023 was around +4.0% yearly (y/y) against CPI growths +4.1% (y/y); i.e., there were still no wage-inflation spirals and overall real wage growth was slightly negative/almost nil. But in 2024 (till September), average AME is growing by around +3.6% against average CPI inflation of +3.0%; i.e. average real wage growth in 2024 (till Se) was around +0.6% against pre-COVID (Dec’19) levels +2.3% (4.6-2.3%). The Fed needs to keep average real wage growth around 2.0-2.5% on average for the goldilocks nature of the US economy.

The US needs proper fiscal stimulus/policy in place to deal with a higher number of immigrants and fresh job creations with decent core real wage growths.

The overall compensation (wage & other benefits) grew by around +3.6% for the private sector and +4.7% for the government sector in Sep’24; i.e. around +4.2% on an average against +3.3% core CPI; i.e. core real compensation growth was around +0.9%. This is against pre-COVID (Dec’19) levels around +0.5% (2.8-2.3%).

Overall U.S. minimum/average NFP real wage growth is now turning positive as inflation is falling, while average minimum monthly wage and other benefits; i.e. total compensation growth remains around +4.0%. Also, data shows that immigrants are now getting more lower-end jobs (minimum pay) than Native Americans. Although this may be due to a lack of Native Americans, willing to work at minimum pay lower end jobs,

Trump is now actively campaigning against Biden/Harris for an ‘America First’ political narrative, putting Biden/Harris (Democrats) at some disadvantage. In 2022-23, after all types of COVID era restrictions were withdrawn, there was a flood of legal/illegal immigrants; i.e. supply of more labor force and the previous imbalance between demand and supply got balanced to some extent, resulting in the softening of wage pressure, labor market and also inflation subsequently.

Overall, the US general public now may prefer Trump’s political/election slogans of ‘America First’ and ‘Make America Great Again’. Although history shows both Democrats and Republican admins are spending too much in the foreign war directly or indirectly (through proxies) rather than investing in increasing supply capacity or developing new infra (both social and traditional/transportation). The increasing homeless population in the US may also indicate that the US needs to build more affordable houses and smart cities like China either directly or through PPP mode.

Most ordinary Americans are not happy with the present US Govt (Democrats) policy to fund Ukraine, and Israel billions of dollars to keep the US military industry lobby & subsequent political funding in good health; the US has spent almost $6-10T borrowed money to fund Iraq and Afghanistan war along with various foreign military/CIA adventures in the name of national security. Although USD is a global reserve currency, higher public deficit, increasing public borrowing (combined debt almost around $40T; Federal $35T; states $5T), and increasing currency (YSD) devaluation are increasing inflation and creating higher cost of living, often not sustainable for a large part of lower-middle-class Americans, earning around $5K/month; after paying for housing/rent/EMI, footing and transportation, very little amount left for discretionary spending.

In brief, the Oct’24 US NFP/BLS job report may be termed as mixed rather than terrible; if we add back around 175K lost NFP jobs due to various idiocentric/transient factors, the headline NFP job addition should be around +190K rather than reported +12K. In that scenario, the 2024-YTM average NFP job addition continues to be around +200K on average. The overall US job/labor market remains in a Goldilocks state. Although the US labor/job market has been cooled from a very hot state in 2022-2023 and Q1CY24, the overall situation is now Goldilocks in nature and in line with pre-COVID times; but overall wage growth is still elevated and the labor market is still robust despite increasing number of immigrants/ potential workers and limited fresh jobs amid increasing AI disruptions and decreasing manufacturing sector.

In summary, the overall US labor market may be now termed as Goldilocks rather than too soft or recessionary despite an elevated unemployment rate of around 4.0% on average and real wage growth of +0.5% (y/y) despite subdued NFP payroll job and employed person addition numbers in the last few months. There is equivalent growth in the number of multiple job holders and also labor force/job aspirants amid a rising working population/immigrants. Overall, there are still not any widespread layoffs and the uptick in unemployment number is mainly due to a higher number of multiple job holders and laborers/job aspirants/immigrants, along with limited available new job openings.

Overall, even after cooling down in the last few months, the US labor/job market is still robust or now in Goldilocks mode despite elevated unemployment numbers along with the terrible addition of several employed persons. Elevated unemployment numbers may be due to the increasing number of multiple jobholders, and labor force/job aspirants rather than widespread layoffs. But at the same time, available open new jobs are declining due to various structural issues in the US; it’s not only to present higher borrowing costs or Fed stance. The Government has to act in proper policy planning and implementation along with political bipartisan/consensus between two major political parties (Democrats and Republicans), whoever may be in the White House from Jan’25 (Trump or Harris).

The US as a land of immigrants & innovation, also needs a policy thrust in infra spending and consumer durable goods (manufacturing) production rather than being the ‘king’ in military equipment & airplanes (military + civil) and AI Chips in the manufacturing space. The US needs to employ more fiscal stimulus in infra (traditional & social) to create more capacity/supply for the increasing population and also the manufacturing sector with appropriate policies in place to compete with China and other manufacturing powerhouses of the world rather than engaging in trade/tech/cold war with China and even so-called European/EU allies and even Japan, SK, and Canada.

But the US lacks political & policy consensus as most of the time, the White House runs a minority Government without any broad policy consensus between two main political parties (Democrats & Republicans). Moreover, at present under the Biden admin, there is a distinct leadership/policy vacuum, while the lobby of military industrial manufacturing may have the ultimate control over US politics and policies.

Thus US is now too preoccupied with the Gaza and Ukraine war not only in terms of resources/funding/military equipment, but also politically and policy. The US is also too preoccupied with China's Cold War policy due to domestic political compulsion rather than its policy formulation. Although, due to the global reserve currency status of USD (as the US is the undisputed trusted biggest superpower and democracy), the US survives every financial crisis, the never-ending cycle of the higher public deficit, higher debt, and higher devaluation, Gild is getting a boost as an inflation hedge physical asset, limited in supply apart from the haven boost amid the never-ending geopolitical policy of the US (like Ukraine and Gaza war).

Conclusions:

As US core inflation almost stalled in Q3CY24 around +3.0% on average, while the unemployment rate remains stable at around 4.0% along with resilient Real GDP and PDPF growths around 2.8-3.0% on average, the Fed should pause in Nov’24. Also, the Fed may cut -25 bps in Dec’24 rather than another jumbo -50 bps. But the market is now still expecting a -25 bps rate cut each in November and December as the Fed may have missed the opportunity of two rate cuts in H1CY24. Thus to makeup, the Fed may also cut -25 bps in Nov’24 and another -25 bps in Dec’24 for a cumulative -100 bps in CY24 (by front-loading to stay ahead of the curve).

As per Taylor’s modified rule, considering the desired real REPO rate of +1.0%, core CPI inflation targets of +2.3%, unemployment targets of 3.5%, and real GDP growth targets of 3.0% and expected 2024 average levels, the Fed should cut REPO rate from present +5.0% to 4.0% by Dec’25. But the Fed may cut -25 bps both in Nov and Dec’24 despite core disinflation almost stalled in Q3CY24, while the unemployment rate remains stable around 4.0% and economic activity remains resilient as Fed may quicken QT tapering to close the same by Dec’24 to Mar’25.

Also, the Fed may stay alert to ensure financial stability as Trump may be reelected again and create Trump tantrum 2.0. Fed reduced its B/S from around $7.70T in Dec’24 to almost $7.00T by Oct’24. For Financial stability, the Fed may keep its B/S size at around 22% of the estimated US nominal GDP of $30T by CY25. Fed may quicken the QT rate to close the QT to ensure full transmission of rate cuts as QT and rate cuts are two contradictory tools, whatever may be the Fed narrative.

Market Impact:

On Monday, Wall Street was under stress on renewed Israel-Iran tensions and the concern of Trump tantrum 2.0. Nvidia surged ahead of its inclusion in the Dow Jones Industrial Average next week, replacing Intel. Also, Boeing, Chevron, Home Depot, and Walmart were in green, while Apple, Meta, Tesla and Amazon dragged.

Boeing got a boost after a report that the labor union may withdraw the 7-week-long strike soon by accepting the 3rd proposal about salary increments and other issues, which comes true early Tuesday European session, helping Dow Future to have some recovery from around multi-week low. Also NQ-100 future got some pre-market boost as Palantir Technologies jumped on earnings & guidance beat, while, NXP Semiconductor tumbled on subdued guidance.

On Monday, Wall Street was boosted by energy (higher oil prices as OPEC will not hike any production quota in Dec’24), real estate, materials (China optimism), and consumer staples, while dragged by utilities, communication services, banks & financials, healthcare, consumer discretionary, industrials and techs to some extent.

For the time being, all focus of the market is now on the US election rather than the Fed outcome/projection two days later. Overall, even if Trump wins Trifecta (simple/absolute majority), and can extend his 2017 era tax cuts beyond the scheduled expiry of 2025 with fresh tax cuts, his bellicose policies and constant trade war rhetorics (like Trump 1.0) may be negative for the Wall Street. But as a trade war currency, USD may gain (already gaining in anticipation). Also, Trump's plan may add around $10T in fresh debts over 10 years; i.e. $1T every year if Trump can pass all his plans through US Congress.

This is against Harris’s plan which may add around $4-5T debt over 10 years (assuming Harris may not be able to hike tax on super riches and corporates as in any electoral democracy, corporate funding and lobbying control everything). In brief, Harris’s plan may add around $0.5T of fresh debt/per year on average for the next 5-10 years against Trump’s $1T. Thus Trump’s plan is fiscally more expansive than Harris's and may cause more public deficit, debt, currency devaluation, and inflation; this is positive for Gold and negative for bonds (as the government has to issue more debts to fund deficit spending).

Also, Trump trade/cold war tantrum 2.0 is negative for China, China-savvy US MNCs, techs, EMs, EU/Europe and even the US economy itself as the US industrial/ traditional infra is now far behind China. Trump’s thrust into manufacturing everything in the US will be inflationary even after considering FX factors. But Trump’s anti-war stance may bring the Ukraine and Gaza war ceasefire earlier than Harris. Trump may also deny fresh grants to ‘the world’s smartest salesman Zelenskyy and even Israel PM Netanyahu, the world’s most smart victim card player).

The US election voting is already under way since mid-September and the last date of voting is 5th Nov’24. Trump may be getting more support from Corporate America due to his tax cut policy and deregulation thrust. But at the same time, Harris may get more support from female voters (pro-Abortion stance), minority/immigrants, and middle class/lower middle class. Thus the fight will be tight.

Overall, Harris 1.0 may be better for Wall Street rather than Trump 2.0. Harris’s Presidency may ensure greater policy continuity and predictability than Trump. Although, Harris 1.0 will also continue Trump/Biden era tariffs and cold war strategy, Trump trade war tantrum is much more damaging. Thus despite Trumpflation (reflation) optimism, stock markets on both sides of the Atlantic as well as the Pacific are under stress. Also, the risk trade is under stress on the concern of gradual withdrawal of Yen carry trade as BOJ may set to hike its repo rate from 0.50% at present to 2.00-2.50% by 2026-27 against Fed’s 2.75-3.0%.

The US is already now paying around 15% of Federal core tax revenue as net interest payment on Federal public debt, which is quite high if compared with China/EU’s 6% levels. Also if we consider state public debts, combined US Public debt is now above $40T for FY24. Recently, US Treasury Secretary Yellen said net interest/nominal GDP should not be over 2%, which is now actually around 2.40%. The market is also concerned about rising public deficit and debt, most of which is going for social schemes rather than infra projects like in China. This is affecting the productivity capacity of the economy and also causing inflation.

Bottom line:

Although Trump is set to win a Trifecta (simple majority House, Senate and also White House) this time (at least till Nov’26, the next mid-term election), Trump 2.0 may be negative than Harris 1.0 for Wall Street due to policy uncertainty and Trump tantrum despite the hype of more corporate tax cut under Trump. But at the same, there may be a higher probability of an accelerated ceasefire not only for the Gaza war but also for the Ukraine war as the Trump admin may not extend Biden-era active military and direct funding support for billions of dollars in the name of so-called national security and ‘promoting democracy’.

Thus Trump 2.0 may be also negative for Gold, which has been a major beneficiary of the Gaza war in the last year. US bond yield is also gaining in anticipation of Trump 2.0 as under Trump, there may be more US fiscal deficit and debt despite Musk being the financial controller under Trump admin 2.0 to cut unnecessary government spending. USD is also gaining as a possible trade war currency under Trump 2.0

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (42000) now has to sustain over 41800 for any recovery and further rally to 42900/43050-43250/43500* and 43700/44000-44500/44800 in the coming days; otherwise sustaining below 41750, DJ-30 may further fall to 41500/41400*-41200/41000* and further 40700/40300-40100/40000* and even 39700/394350-39000*/38500 in the coming days.

Similarly, NQ-100 Future (20150) has to sustain over 20400 for a recovery to 20600/20800*-20900/21000* and further rally to 21300/21700-21900/22050 and even 23000 levels in the coming days; otherwise, sustaining below 20350, NQ-100 may again fall to 20000/19900 *and 19800/19700-19600/19350 to 19100/18900 in the coming days.

Technically, SPX-500 (5750), now has to sustain over 5725 for any recovery to 5935/5950*-5975 and further rally to 6000/6050-6100/6150 in the coming days; otherwise, sustaining below 5700, may again fall to 5675/5650*-5600/5575*-5550/5500-5475/5450 and 5425/5390-5370/5300* and 5250/5100* and further 5050/4950*-4850/4750 in the coming days.

Also, technically Gold (XAU/USD: 2745) has to sustain over 2760 for a recovery to 2775/2795*-2605/2615* and further rally to 2825/2850-2875/2900 and 2925/2950-2975/3000 in the coming days; otherwise sustaining below 2755-2745, Gold may again fall to 2725/2700* and 2675/2650-2625/2600 and 2590/2575-2540*/2500 and further to 2470*/2440-2425/2400-2375/2330-2275 in the coming days (depending upon Fed rate cuts,  Gaza/Ukraine war trajectory and US election outcome); under Trump 2.0, Wall Street/Gold and even oil may be more influenced by Trump’s almost daily bellicose comments rather than Fed and OPEC talks).