Nasdaq Posts Best Day Since May as Fear & Greed Collide

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2:03Welcome to Prof. G Markets. I'm Ed Helson. It is November 25th. Let's check in on yesterday's market vitals. The major indices rallied on optimism for a rate cut in December. The odds of a cut currently stand above 80%. Meanwhile, the yield on 10-year treasuries declined, the price of gold rose, and finally, Bitcoin clawed back from its recent lows near$80 ,000. Okay, what else is happening? Tech led a second day of rebounds Monday after a week of whiplash in the markets ahead of Nvidia's earnings last week. The S &P was on track for its worst November since 2008. Then Nvidia's earnings came out.

2:43It calmed nerves for a moment. The entire market was lifted. The next day, however, the stock gave up all of its gains and the rest of the market followed. And then on Friday and yesterday, stocks rallied and the Nasdaq closed up nearly 3 % for its best day since May. So we went down, then up, then down, then up again. A lot of mixed signals coming from the market. So to help us make sense of all of this, we're speaking with Robert Armstrong, US commentator for the Financial Times, author of the unhedged newsletter and fan favorite on Prof G Markets. Rob, thank you for joining us. It's always fun to talk with you.

3:16So we want to get your reactions to just the up, down, up, down whipsawing that we keep seeing in the markets. Obviously, things look bad. and then Nvidia reports earnings and then things look good. And then the next day things look bad. And now apparently things are good again. What is going on? How do we make sense of this? Well, these are the kinds of days, as several of my readers have pointed out, that are designed to make market commentators like me look stupid. You know, it's like, you know and the short you know you don't want to spend too much of your energy predicting or analyzing short-term changes in the market but i do think the volatility is telling you something here which is there is it's a market in conflict with itself where strong fear is meeting with strong greed you know the market is always a contest between those two emotions but i feel like right now, both emotions are very strong.

4:20In other words, there is a strong sense, and you get this when you talk to people too, that if you're not in the market right now, you're missing out on a huge opportunity. And there may be some truth to that. And we know that the market is expensive and there are some scary things going on we don't quite understand. So it's like, it's the push and pull between two opposing strong emotions, I think is the metaphor that probably captures it best. What do you make of those two arguments? I mean, both are pretty compelling to me, and that's probably why we're seeing such huge amounts of volatility.

4:57We've had Asparta Modrin, who I know you wrote about in your newsletter, who is very bearish. But then at the same time, AI is transformative. NVIDIA had these great earnings. I have my gripes with that earnings report. But there's a lot of reason to be bullish as well. I mean, where do you land? Okay. So one thing that I've been writing about lately that is really important to keep in mind, you know, when people are making bearish talk recently, including the great Demodaran, he's talking about extremely peaky valuations, that for every dollar of present earnings you're paying for the market, or even near-term earnings, you're paying a lot of money for each dollar of earnings, right?

5:40That's what we mean when we say markets are expensive. And the important thing for investor to keep in mind is that over the short term, like a year or two or three years, that is not predictive information. Like I've put scatter charts in my newsletter, right, where you have the PE ratio on one axis and the price return on the other axis, and it's just dots all over the place over one year. It's only after or five, seven, 10 years that the valuation, you know, as they, you know, some people say investing is a game you win or lose on the first tee. In other words, if you tee off from a place where it's really expensive, you've kind of lost the game already.

6:21That is true, but it's true over 10 years, not over one. So what's going to happen next year? Valuation gives us no information. So that's one thing to keep in mind. If you're thinking as a long-term investor, maybe it is a good time to shade back, you know, like as Aswath said, a little more cash, maybe diversify a little more, be a little more careful, but it doesn't mean we're not going to have an absolutely ripping year in stock markets over the next 12 months. So that's point number one. Point number two is I think the environment politically, and you and I, I don't know if we're going to agree or disagree here, but I think as a starting point, the environment politically is probably risk-friendly for the very unfair but nonetheless possibly true reason that this administration is going to pull every lever they can get their hands on until the midterms.

7:19Because I was talking to a politics guy about this today. The betting is they lose the House, just as a starting proposition. They lose the Senate too. Trump just is sitting in a room alone for the next two years. So whatever it takes in terms of a stimulus package, if things start to go sideways, either in markets or in the economy, we're going to see some stuff from this administration. Maybe it'll be a mistake. Maybe it's stimulus checks. Maybe it's inflationary, whatever. They're going to give it all a try. I think the important point there, and this was part of the bull case that you laid out for 2020, Stokes.

7:59You called it fiscal largesse, interventionist White House. The point being, if the government spends money, history shows us over the short term, that's good for the stock market. Sure is absolutely good. If they spend deficit money, in other words, if they borrow to spend, that's just cramming money into the economy. Because if they tax just as much, they're pulling the economy out. So the crucial thing is it's deficit spending. And I think, I mean, we know already that some of that's coming. It was also pointed out, me today, that the tax relief that is for companies and for households that is in the one big beautiful bill is retrospective to this year, which means it's going to show up in people's refund checks in March and April.

8:41That's going to be money into the economy. Now, I probably share the fears you've expressed on this show that a lot of the action in the market in particular rotates around a few themes and a few stocks, I think that's probably a legitimate worry. Is that how you guys are feeling? Yeah, I think that that is our general concern, is that we're going to see the demand that seems to be artificially inflated. It will run out at some point. It sounds like what you're describing is that the government is going to have the ability and the incentive to keep kicking the can down the road, in which case maybe 2026, things will be good.

9:19AI continues to rip. But you did also lay out your bear case for 2026, where you bring out some of these issues. You've got inflation, you've got Nvidia stock cracks, margin contraction, TANCO, which was interesting. Just take us through the bear case. Okay. So the bear case is, one, it becomes very politically hard for the president and his allies in Congress to do a lot of fiscal fiddling around and a lot harder for the central bank to do monetary fiddling around if inflation comes back. I think inflation is the economic variable that I am always wrong about. And I'm even wronger than most people, which is very wrong.

10:10So I'm not going to sit here and tell you I can predict inflation. What I can tell you is the escape hatch of monetary and fiscal looseness for the market closes if we have inflation run past, say, four. Then it becomes just, you're going to pump more money into the economy when we have 4 % inflation? You're not going to get away with it. Then the wheels really come off. nvidia look company's worth 4.5 trillion dollars right like that's a mighty big boat if it hits an iceberg you know uh and i you know tanko the other one i mentioned you know i think we've done we've been lucky as people as investors that the president chickens out you know in the taco line yes uh which will be written on my gravestone whether i like yes for those for those who who were not aware, Robert Armstrong created the term taco.

11:09Yeah, for Trump always chickens out. That's right. And I think you filed for a patent as well, right? Well, you know, I asked about that, but you can't, as it turns out, you can't copyright a short phrase. Anyway, very frustrating. Yes. Anyway, taco just means like there's always the worry that Armstrong is wrong about Trump. He's really a true believer and he stops chickening out. In other words, if he gets into a real ideologically driven trade war with China rather than a posturing war, I don't like that much. So that's the stuff I'm worried about. I mean, it's really hard to say much of interest about what the stock market is going to do over a one-year period.

11:57But these are the things, if I had to pick the things that could go right or wrong, these are the things that I would pick. The other thing that's been really interesting watching over the past week has been what's happening to Bitcoin, which is just barreling down every day. What do you make of that? What does that say about sentiment? I mean, we're really just trying to assess vibes here. That's all we can do right now. What does that say about the vibes? Ed, there is an age line at which point, once you pass it, it becomes impossible for you to say something interesting about Bitcoin. And I am past that age.

12:33You are below that age. So I should be asking you what you think about this Bitcoin thing. Obviously, I mean, I can make the obvious point only, which is that it behaves like a highly speculative asset. All this stuff about how it's digital gold or it's a store of value or whatever. It just looks like it trades like NASDAQ after 10 drinks, basically. I don't know what, I mean, I don't understand the thing well enough to say more about it than that. Yeah. So just before we let you go here, is there anything that you're looking at right now that you think that we should be paying more attention to?

13:10I mean, I think it's very interesting what you're saying about inflation there. That scenario that you bring up where our backstop is federal spending or deficit spending from the government, which is only going to be even remotely acceptable if we don't have runaway inflation that gets up over 4%. It doesn't seem to indicate right now that we're not headed for that. We've been going up and up and up, 2.3 to 2.5. Now we're up to three. I think the market's okay with three. I think we have evidence before us that the market is okay with three. So, but it's the direction of change and you get up towards four and the politics of it are going to change a lot.

13:52And I think that is, I mean, what should we be watching? I mean, I think the thing I always watch is when companies do well and the stocks don't respond that much, as was the case with NVIDIA, that tells you something. And I'm going to be watching for that pattern we saw with NVIDIA. does it recur in the quarters to come? In other words, is absolutely everything priced in everywhere where companies are beating or meeting targets or they're growing at the rate they've been growing and the market just doesn't care? And once that happens, it's like everybody, what that tells me when that's the general pattern is that everybody who can be in the market is in the market.

14:46And the only door that works is the exit door because everybody is inside. So that's what I'll be watching. All right. Robert Armstrong, commentator for the Financial Times, author of the Unhedged newsletter. I recommend it all the time. I recommend it again today. Really great read. Robert, really appreciate it. Thank you. Anytime, Ed. After the break, a look at the latest jobs report. If you're enjoying the show, give Prof. G. Markets a follow.

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18:14We're back with Prof G Markets. Well, it's almost December, so naturally we have just received the September jobs report, and it was quite mixed. Employers added 119 ,000 jobs, which was stronger than expected, but the unemployment rate went up to 4.4%, and that is the highest rate we have seen in four years. So some people are focusing on the unemployment rate. Others are focusing on the job growth number, including the White House, which said, quote, this strong report is more proof that President Trump's pro-growth America first agenda is already making great progress. That is certainly up for debate.

18:51So here for a full review of this jobs report and what it means for our economy. We are speaking with Catherine Anne Edwards, labor economist and host of the Optimist Economy podcast. Catherine, welcome back to Prof.G Markets. Thank you. And we should also say that you are sort of coming out of maternity leave, coming out of, you called it semi-retirement. So thank you for that as well. We really appreciate it. We need your insight. Happy to be here. So this jobs report, we added 119 ,000 jobs, which was good. But then we also saw that the unemployment rate went up to 4.4%. That's the highest unemployment rate we've seen in four years.

19:32give us your reactions, give us the breakdown. Was this good, bad, or something else? Good, bad, or ugly? I think the way that I've tried to make sense of it is the labor market is cooling. It's slowing down. And every month, we're going to make maybe two steps forward, one step back towards that cooling. So some months, we add a lot of jobs, but then we'll see a heavy revision. Some months, the unemployment rate stays stable. Other months, like this one, we saw it jump to 4.4. You know, it's all kind of telling us the same thing, that we don't have a strong labor market right now. It's not robust.

20:09It's not expanding. It's not hot. We're just seeing it cool kind of at different paces according to different metrics. Maybe another way to think of it would be, you know, if you're driving a car, like the light's red. The cars are slowing down next to you at different rates, but we're all going to come to a stop. And it's not as if there's a green light ahead and everyone's just got their foot on the gas. So it's just at what rate things slow down and not if they're getting better. That 4.4 % number, which, I mean, when you look at it on a chart and you see it's this very, very high point compared to back in 2021.

20:44It was the last time it was that high. Is that significant, you think, that it's gone up, that it's the highest we've seen in four years? At least when I look at a chart and the line's as high as it is, it looks concerning to me. Well, the pushback would be that, historically speaking, 4.4 is pretty low and that we should, there's a little bit of a, shouldn't you be grateful for a 4.4 percent? You know, back in my day, we lived at five, right? There's this, you know, historical comparison of where the U.S. unemployment rate has lived over various points in history versus the kind of much more contemporary context of where we have been in the last five years.

21:23It's worth noting that when the unemployment rate was this high in October of 2021, it was falling. It was falling dramatically in each month as we were coming out of the pandemic. So think of this as around the fall after hot vax summer, when we all got our vaccines in 2021. This was the fall when like everything was reopening and stuff was coming back online. That's where we are in the unemployment rate now. And in the period since the unemployment rate fell to a record low in the spring of 2023. It rose for about a year afterward. It's been stable for about a year, and now it's starting to increase steadily again.

22:01And the last three months have seen an uptick. Now, part of me has wondered if because of the nature of the last two recessions, one being the pandemic and one being the financial crisis and associated recession, we're not used to a recession coming from a slow uptick in unemployment. We're used to the car crash, you know, the economy falling off of a cliff. But that's not how the U.S. typically enters a downturn. It just slowly marches its way there. So, yes, you could write off 4.4 % as being historically low. But, you know, 1980 doesn't matter to what's going on in the economy right now. The unemployment rate has been rising for three months.

22:41Yeah. A lot of mixed signals in there. One thing that also stood out to me was the numbers in the manufacturing data. 6 ,000 jobs lost in manufacturing. That's the third straight month of falling employment in manufacturing or rising unemployment, which is just ironic because this administration was going to bring back manufacturing. And I'm sorry to point it out, but that was the whole story that we were told. That was the pitch. And the opposite is happening. Manufacturing is getting battered, it seems. Your reactions? Tariffs are not an industrial policy. Yeah. If you want to have revitalized manufacturing in the United States, you can't just put up a poster board in the Rose Garden and then clap yourself on the back and say, I did it.

23:30It's manufacturing in the 21st century economy, a global economy in which we have integrated supply trains, in which as many of things we produce inside the United States are made with parts that are imported from outside the United States. It's not as easy as that. You have to have very thoughtful, very deliberate, and very well-designed industrial policy to revitalize manufacturing in the United States. And you've got to do it coordinated across workers, across employers, across training schools for making those workers qualified for the job. And none of that happens when you just institute a tariff.

24:06And if you look through surveys of manufacturers, Texas has one. There's a national one. They'll tell you, here's what's going on in my business. Here's what's going on in my company. And you've heard it, you know, since that April 1st Liberation Day, they are plagued with uncertainty and rising input costs. And they can't expand and hire aggressively when they don't know what their bottom line will look like month to month. and some manufacturers will make out in this situation. You are going to have some manufacturers, some parts of the manufacturing base that are doing very well right now and you'll have a lot that are outright suffering and then the rest that are kind of muddying their way through a lot of uncertainty and two of those scenarios do not lead to hiring.

24:50Yeah. The final piece that, I mean, a lot of investors like seeing these jobs numbers because it basically tells us something about what we'll see with the Fed's decision and the interest rate cut. Will we get a cut? Will we not get one? It appears we probably will. But we're also missing a ton of data. BLS, they canceled the October jobs report, also the October CPI report, the consumer price index, which will tell us about inflation. We're not going to get the November CPI report until the Fed has already met. We also just learned that we're not getting the first estimate of GDP data. I mean, this government shutdown has basically meant that we're getting a giant shutdown in terms of lots of data, which means that the interest rate decision for the Fed, which investors are very interested in because it moves markets in a big way, it's not very clear what's going to happen there.

25:46I just want to get your reactions. What do you think is going to happen in terms of interest rates? And what do you think of the fact that we basically are operating with no data right now? It's a deliberate choice. Our hands are not tied. The federal government could have had emergency operations include data collection at this time. They could have rescheduled data collection. They could have prioritized it and said, this needs to come out before the Federal Reserve meets. They could have done all of those things, and they chose not to. So we are not here because of some random act that has forced us into this position.

26:20We have chosen this path from the federal government, and this is where they want us to be. I think the Fed's decision, I would be surprised if they actually moved rates. With this much data uncertainty, I know that there are a lot of private data sources that have come up, but especially for the unemployment rate, the gold standard is the BLS and nothing will compare, especially for those really small numbers. What I thought was the most concerning part of the 4.4 % unemployment rate this past month you know, data release back in September was how much of it is comprised of the permanently, like permanent layoff.