By Andrey Dashkov, analyst, Casey Research
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The latest job opening numbers should give you a pause.
In August, the total number of openings was 10.1 million. That’s one million less than the month before…
And the lowest amount since June 2021.
What does this mean?
That the Federal Reserve’s tight monetary policy and interest rate hikes are finally being reflected in the job market.
So, investors should use this data to prepare for what we predicted a long time ago: an economic slowdown – if not an outright recession.
In a moment, I’ll tell you what the Fed is going to do and how you should position your portfolio for what’s coming.
The Fed Will Stay Its Course
The job market is cooling down, even though the number of vacancies remains historically high.
The declining rate of potential hires shows that companies are cutting down on their future employment plans.
And it’s indicative of a moderating demand for labor, reduced consumption patterns, rising interest rates, and a grim economic outlook.
Mostly, though, the decreased labor market gains are in response to a tighter monetary policy.
Usually, there’s a lag of 12-18 months between a monetary policy decision and its effects on the economy.
So far, the job market has remained resilient. But the lower numbers for August mean that the effects of higher interest rates are starting to show.
And the Fed isn’t going to change its policy in response. It’s bent on fighting inflation to the bitter end.
In August, the Fed’s Chairman Jerome Powell slashed any hopes that the U.S. economy will see a “soft landing,” or a slowdown that avoids an outright recession.
He insisted that he will continue raising rates until inflation is suppressed and the “out of balance” labor market returns to a normal state…
Even at the expense of a recession.
As a result, the latest job openings data won’t stop the Fed from hiking rates by another 0.75 percentage points.
Plus, the Fed is in a hurry. It’s not going to wait for the lag between policy and its effects on the economy to fully play out. The Fed will hike interest rates as fast as possible…
Which means we won’t see the true impact of the Fed’s actions until 2023 and 2024.
So we’re up for a long period of economic pain and uncertainty…
What Can You Do to Protect Yourself?
The uncertain economic situation means that investing even in the biggest and most well-established companies is close to speculation.
This is especially true for companies loaded with debt. Debt has already become expensive for new borrowers. For those who need to refinance their existing loans, it poses a real problem. They may find themselves simply unable to make interest payments.
A wave of defaults could be coming. And some signs of distress are already here. Credit Suisse, a Swiss bank, is in the middle of a solvency crisis that has already decimated its share price. Year-to-date, it’s down 53%.
Even strong and well-capitalized institutions could crumble.
So what can you do about it?
One thing is certain: interest rates are going up. Finding a way to get exposure to this trend could save your portfolio in the coming months.
I told the Dispatch readers about an ETF linked to interest rates back in July – Simplify Interest Rate Hedge ETF (PFIX). It hedges against interest rate risks and uses instruments that usually only institutional investors have access to.
This strategy has worked well so far. Since July, when I first mentioned it, PFIX is up 9%. Meanwhile, the S&P 500 is down 3%.
During this period of uncertainty, you should think about protection first and make select bets on the best opportunities that the market presents.
And of course, we’ll keep you updated on any moves to make in this bear market.
Good investing,
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Andrey Dashkov
Analyst, Casey Research