Bad news is liquidity news.
Friday’s jobs report showed employers added 29,000 jobs to the private sector in September. That’s a third of the 89,000 expected. July and August payrolls were also revised down by 60,000. The unemployment rate rose to 4.2%.
A soft labor market does not make the booming real economy Republicans are campaigning on for the midterm elections, less than a month away now.
However, as if to prove that the real economy and the stock market ain’t the same thing… traders immediately translated the report into Fed math.
A weaker labor market gives Fed officials less room to raise rates again in October. If you happened to be watching the betting sites when the jobs number dropped, you would have seen the odds of a Fed rate cut drop, too. Precipitously. There’s now an 80% chance the Fed holds rates steady on October 28.
The “bad news is good news” setup overwhelmed typical seasonal weakness. A softer economy means a friendlier Fed, and a friendlier Fed means investors can justify paying more for growth stocks.
The trade fed into another trend with remarkable staying power: the high concentration of capital feeding the AI beast. Big money is still moving into the dominant large-cap U.S. tech names, especially ETFs tied to the Magnificent Seven:
We’ve been meticulously following seasonal trends in our livestreams for the Grey Swan Trading Fraternity. The trend is slightly more pronounced in a midterm election year than in the others, but for all, September and early October typically punish stocks, especially the large-cap index-makers.
If global investors keep sending money into U.S. large-cap tech, however, the market can, will and is resisting a selloff longer than the calendar says it should.
The reason is simple enough. Global investors view large U.S. tech companies as safer than those in local markets. They get liquidity, dollar exposure, dominant franchises, AI options not available closer to home and index leadership in one package.
If a portfolio manager in Europe, Asia or the Middle East wants U.S. growth exposure without having to pick through smaller stocks, the Magnificent Seven offer the easiest entry point.
The Micron narrative is the case in point. Micron’s blowout AI-related earnings Thursday told investors that the AI buildout has not yet peaked.
The market has spent much of the year rewarding second-tier AI beneficiaries — Micron, AMD, Intel and other hardware names — while the original Magnificent Seven lagged their own hype.
If new ETF inflows are heading back toward the largest tech stocks, U.S. traders can, will and do bet on a year-end catch-up move.
The risk here is that the logic depends on a narrow path. The labor market must weaken enough to stop the Fed, but not enough to crush earnings. AI spending must remain strong enough to support chipmakers, but not so capital-intensive that investors worry about returns.
Global capital must continue to treat U.S. tech as the safest growth trade available.
For now, traders are still buying that story. Andrew’s been stalking the pack all weekend and has settled on one member of the Mag 7 herd for today’s mildly contrarian Pro play. You know what they say, “If you can’t beat ‘em…” for now.
~ Addison
P.S. Last week’s Grey Swan Live! with Shad Marquitz was a masterclass in what to look for in resource investing.
We shared our insights from last week’s trip to Colorado to interview mining executives, as well as what we’re seeing in the resource space now. The replay is up on site now. Whether you’re a seasoned resource investor or not, you’ll get some valuable information out of this week’s livestream.
