Andy West, PhD Profile picture
Aug 4 6 tweets 3 min read
Beware Fed cuts, not hikes & the dreaded ISM Services 52/53 band. An equities timing 🧵: The equities market has front-run the economy driven by a reset in stimulus fueled P/Es but not yet by earnings. What to expect from here? See 2 charts & discussion. 1/5
$QQQ $SPY #SPX #macro Image
Cycle timing: In the '01 and '08 cycles, the real #recession (rising #unemployment) did not start till after the Fed had broken something and stopped hiking. Its at this time we see the ISM services really deteriorate. But in past thats been 19-36 mths after hikes started. 2/5
Do we need to see outright services contraction to be worried? No & Yes. The time to get really worried is when ISM Services hits the 52-53 band. Thats when firings accel - before it gets to 50. But yes, when it hits that level, it often collapses. And thats when the Fed cuts 3/5
Delays: the 19-36mths delay from hikes to unemployment might be different this time. By Dec we will already have hiked as much as a normal 2-3yr hike cycle in only 10 mths. That compresses this cycle and points to Q1 23 as the employment crunch. What of equities? 4/5
Equities: P/Es have reset & given delays for real EPS cuts, equities can rally in between as we are seeing. But the bulk of the EPS cuts come after the Fed peak & ISM collapse & coincident with unemployment. As shown below, that comes with large scale further equity downside. 5/5 Image
Equities:

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More from @andycwest

Aug 8
The hidden importance of jobs data for tech stocks & the Fed Put - a 🧵: Many recent investors think that tech (growth) is a safe haven in slow times as tech performs when 10yr yields decline. This is a recent trend & directly related to the Fed Put. See chart & thread. $QQQ 1/7 Image
The chart shows the Nasdaq 100 (white) overlayed with job cut announcements (green) and 10yr yields (orange). Critically, employment is the largest driver of tech spend. When job cuts rise as macro deteriorates, tech spend growth stagnates or falls. 10 yr yields fall as well. 2/7
Pre 2011 (QE ramp), there was a strong relationship between rising job cuts & tech stocks crashing even with lower yields. This changed as the market got drunk on the Fed rushing to rescue with larger & larger QE programs post 2011. See changing direction of white arrows ...3/7 Image
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