Technically Speaking For September 25

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Includes: DIA, IWM, QQQ, SPY
by: Hale Stewart

Summary

Is the fact the people are still happy to have a job keeping them from asking for a raise?

Will the next recession be the "smorgasbord" recession?

Technically -- we have nada today in terms of new technical information.

Are we getting paid what we're worth? Ok -- no one in their right mind will answer that question "yes." But it does get to the question of how are we doing with wages? And the answer is ... not so good:

The Y/Y percentage change in the average hourly earnings of production workers is still weak by historical standards. It's especially weak considering that the labor market is in really good shape -- I mean, the best shape in decades. Why are wage gains so low? Here is one really intriguing possibility [empahsis added]:

I wonder how much of what we are seeing in wage statistics is driven by psychology and norms. People who entered the labor market during and after the Great Recession have lived through some rough times and don’t have strong memories of better times. I’m sure many workers — both relatively new entrants and those with long experience — have had moments where they felt lucky to have a job at all. Even though the economy has been strengthening for years, are workers reluctant to go into the boss’s office and ask for a raise? Likewise, are employers used to resisting increases in their payroll obligations?

This is one of those possibilities that makes intuitive sense. I have no idea how you would phrase a question to determine if it's real (I can just see the survey question now: "are you afraid to ask for a raise because you're still happy to have a job?). But I do think -- especially with millennials who are new entrants into the labor market -- it explains part of the problem.

Yes, central bank meeting minutes are couched in really boring language that is not meant to alarm anybody. But, these documents can also give us insight from people who know more about a topic than we do. Case in point: the latest BOJ Meeting Minutes that describe China, NIEs (newly industrialized economies) and other smaller Asian countries (remember when you told people they were linking to a PDF was a big deal? This is a PDF and you probably don't care):

Many people were deeply concerned that when the trade wars heated up there would be an immediate impact, kind of like slamming on the economic brakes (I was definitely in that camp). Instead, we've seen a modest decrease and other problems that seem like we're "nibbling around the edges" of economic activity. Overall, however, things are still OK.

I recently went on the record as upping the probability of a recession in the next 18-24 months (shameless plug to the article). Paul Krugman has some interesting thoughts on the potential causes of the next recession, in his latest NY Times piece:

The thing is, there’s nothing out there as obvious as the housing bubble of the mid-2000s, or even the tech bubble of the late 1990s. So here’s my thought: maybe the next recession won’t be caused by one big shock but instead by the combined impact of several smaller shocks. There are arguably several mid-sized bubbles out there, from private equity debt to emerging markets. Stocks are priced as if there’s no risk despite omens of trade war, consumer confidence similarly seems to discount dangers. There’s probably other stuff I’m missing.

I can think of a few areas that might provide partial causation: an emerging market slump caused by the rising dollar inflating debt-payments to the point where they cause a recession; an over-valued equity market returning to its median; a modest slowdown in housing caused by high prices lowering demand, and a trade war negatively impacting key parts of the U.S. economy (agriculture, auto production, and import-dependent manufacturing).

When we last left the markets they were vacillating between bullish and bearish sentiment and price action. Yes, the DIA and SPY recently hit new highs. But the other indexes -- especially those that carry more risk (the IWMs, QQQs) are meandering, not confirming the move higher.

All that being said, let's see how we did today, shall we?

Middling performance (at best). The IWCs were up .41%, the QQQs .17%. The other averages fluctuated around 0. In other words -- nothing occurred of any meaningful consequence.

So, what this means is -- from a technical perspective -- we have bupkis relative to the information we had yesterday (and which I beautifully summarized) above. The DIAs and SPYs have pulled back from new highs but no one else wants to make a move higher and support these records. There is no time limit on the idea of technical confirmation. Ideally, it happens sooner rather than later.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.