/ September 08 / Weekly Preview
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Monday:
N/A
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Tuesday:
Non Farm Payrolls Annual Revision
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Wednesday:
PPI MoM (0.3% exp.)
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Thursday:
Inflation Rate YoY (2.9% exp.)
Core Inflation Rate YoY (3.1% exp.)
Initial Jobless Claims (240K exp.)
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Friday:
Industrial Production MoM (0% exp.) -
Monday:
N/A
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Tuesday:
Oracle CorporationSynopsys, Inc.
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Wednesday:
Chewy, Inc.
Manchester United Ltd.
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Thursday:
Adobe Inc.
Kroger Company (The)
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Friday:
N/A
Are You Worried?
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We’d like to open this week’s missive with a very appropriate quote from a legendary investor - Ray Dalio, founder of Bridgewater Associates:
“If you’re not worried, you need to worry. And if you’re worried, you don’t need to worry.”
This saying is ringing true more so today, with markets hovering near all time highs while fundamental economics weaken simultaneously. It’s only natural for investors to try and reconcile these two apparent contradictions and seek different cases in history when circumstances were similar.
Let’s first look at the August employment report, released last Friday. Employers added just 22,000 jobs, far below consensus expectations, signaling that hiring momentum has slowed significantly. The month of June was revised to show a loss of 13.000 jobs as well — the first monthly contraction since 2020.
Headline Unemployment rose to 4.3% from 4.2% previously, which represents the highest level since the pandemic. Layoffs surged, with about 86,000 job cuts announced in August, the largest total for this month since Covid.
All in all, slowing economic growth is all but guaranteed at this point, as companies curb their workforce expansion and trim payroll spend. A slowing labor market has knock on effects such as reduced upper pressure on wages and easing sticky inflation. Initial Jobless Claims and Continuing Jobless Claims have risen +33% in the last 3 years, while the Unemployment Rate rose from 3.6% to 4.3% in the same timeframe.
The most immediate comparison that we can draw is the labor market environment in 2008 (specifically July - August 2008), a time when the same metrics also increased by +30%. Note the difference in the speed of ascent in both the Unemployment rate and the cumulative number of claims. The 2008 market had a much more aggressive slope upward, signaling that “something had broke”, whereas today’s market is far more flat and looks more “controlled” in its upward trajectory.
Also, the raw numbers included in the calculation differ:
July - August 2008: a total of 3.695.000 initial + continuing claims, 6.1% Unemployment
July - August 2025: a total of 2.177.000 initial + continuing claims, 4.3% Unemployment
We would argue that if the Fed can get ahead of the slowdown, there’s a good chance of the employment situation not getting much worse. This is also what rising markets are betting on at the moment.
There is a potential fly in the ointment, however: the Non Farm Payrolls Annual Revision, coming up on Tuesday. The revision adjusts monthly employment estimates from the Current Employment Statistics (CES) survey to align with more comprehensive data from the Quarterly Census of Employment and Wages (QCEW). These revisions, typically finalized each year for the March reference period, reflect updated employment counts based on unemployment insurance tax records, which cover nearly all U.S. employers.
In other words, we’re about to get a more accurate look at the labor market, though the final “history books” revision is slated for February 2026. This is a huge lag as far as stock market investors are concerned, and one we are extremely aware of, especially since the last 2 revisions (2023 & 2024) have been monumental.
At the moment, the preliminary numbers based on updated QCEW data from December 2024 suggest a downward revision of approximately -668,000 jobs. For context, the negative revisions in 2008 - 2009 were:
2008: -293k jobs for 2007-03 / 2008-03 period
2009: -902k jobs for the 2008-03 / 2009-03 period
In this context, the bond market is first to respond and we’ve seen long term treasuries perform rather well recently. If the revisions to employment show a substantially weaker than expected outcome, bond yields will likely fall further, pushing assets like TLT above intermediate resistance ($88.7, S2).
Every time we’ve been discussing long dated government bonds recently, we’ve repeatedly highlighted the accumulation that institutions and market makers have been doing in the bond market. It does look like these accumulation patterns are now starting to show positive results.
Looking forward, the market is fraught with uncertainty. In theory, lower interest rates support higher equity valuations by reducing discount rates and improving liquidity.
In practice, the median Price to Sales of the top 500 stocks in the market is now exceeding levels recorded in 2021-2022, and the January 2025 peak, both of which marked historical business cycle highs at the time. For context, a median value of 3.0 Price to Sales is already very high. At the moment, the latest recorded value stands at 3.78.
It’s hard to imagine valuations pushing much higher, despite incoming lower rates. This leaves EPS growth as the sole potential price appreciation driver in the near term. Not saying that this is an issue, it’s just getting increasingly hard for prices to rise if valuations remain the same.
The technical backdrop of the market is bullish, with momentum indicators remaining supportive of further gains. At the same time there are some internal metrics producing a negative divergence (MACD is negative, RSI is sloping downward, participation is slowing).
Overall, breadth is healthy and the benchmark equities ETF is trading above all key moving averages which provide support. Notably, a close below $633 would potentially open the door for a deeper drawdown to around $600 at the S1 level and the 200-DMA. At the moment, this is a distant possibility, however.
To the upside, technical resistance stands at $685, though equities are likely to grind slowly higher, amid compressed volatility.
Example of Bearish divergence among Market Breadth (Participation)
Multiple Sectors are also participating in the advance, with 11 out of 12 being Positive on a medium term trend basis and a recording a 63/100 Average stochastic oscillator value — indicating good performance.
Our Trading Strategy
Since mid-May, we have minimally adjusted our overall bullish posturing. There has simply been no need to take any macro action in the Sigma Portfolio, and that seems to be the case this week as well.
We will be adjusting several price and stop targets as per our usual routine, but little else. The market still has upside potential into the FOMC meeting on September 17 next week.
We are aware that seasonal headwinds should have manifested by now, and we may need to tighten our game plan soon. With volatility extremely compressed, risk will happen very fast when it will indeed manifest. The time to take profits is approaching.
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The primary purpose of this blog post is to share industry expertise and research and receive feedback (confirmation / refutation) regarding my investment theses.