Weekend Market Brief – Sunday 11/04/18

There was an interesting discussion on FinTwit this weekend about how the BLS has been overestimating the number of new jobs created. Every February the BLS adjusts the previous year’s numbers based on the actual payroll tax withholding data. One expert who knew how the BLS makes this calculation felt there would be significant downward adjustments for 2018.

Even though the tax cut reduced tax withholdings, this expert said the numbers didn’t add up and will need to be revised down. Both personal and corporate tax withholdings have contracted on a year-over-year basis, which generally signals we are or are about to enter a recession. It doesn’t make sense that with unemployment near historic lows that tax withholdings would be contracting.

Bank of America Merrill Lynch GIS division posted a chart showing the recent positive correlation between the S&P 500 and 30-year Treasury bonds. Normally the two are inversely correlated, but lately, they have been positively correlated. The last time there was a positive correlation was just before the Great Financial Crisis of 2008-09. Look for my upcoming Friday update that will explain why higher interest rates during tight financial conditions lead to a recession.

JPMorgan reported that corporate cash repatriations, which have been used to fund corporate share buybacks, are slowing considerably. The report also noted that corporate share buyback announcements for the remainder of the year have fallen below $50 billion per month. As I previously talked about, with the Fed destroying $50 billion per month starting in October, there won’t be enough corporate share buybacks to drive the stock prices higher. The report didn’t include October’s data yet, but if last month’s drop in stock prices is an indication, it appears the corporate share buyback machine will no longer be able to support stock prices.