Bad News/Good News

The latest labor data did a slight number on this week's PWA Index score... Although, overall, we continue to see very low recession risk for the foreseeable future.

And while the latter, all else equal, paints a favorable picture for equities, all else, alas, is never equal.

Note that the equity market popped higher on Thursday's release of the weaker than expected June payrolls data and the -74k prior months' revision... I.e., for that moment bad news (being disinflationary) was good news for stocks... However, while the Dow held up nicely, by the end of the session the S&P 500 finished dead even, and the Nasdaq was down nearly 1% -- reflecting continued angst over the ramifications (sustainability, debt financing, profitability, valuations, ancillary players, etc.) of the continued massive AI-buildout.

Not to say that we're not in the near-term bullish camp -- we actually (cautiously) are -- however, as I keep expressing, the setup gets sketchy later this year/into next... More on that herein to come.

In the meantime, here's your summary of this week's PWA Index scoring, followed by a succinct macro note*:

This Week's Conditions Gauge

Our internal conditions gauge came in at exactly 0.00 this week, down from last week's +2.99 — which had been its first positive reading since late March. A zero means precisely what it sounds like: of the sixty-seven indicators we track weekly, the number flashing green and the number flashing red are, for the moment, in perfect balance. The six-week climb off the mid-May lows stalled right at the zero line, and the entire give-back came from one place: the labor complex. Payrolls, private hiring, labor force participation, and the Atlanta Fed's real-time growth estimate all moved down a notch; layoff announcements (which fell to their lowest level since December) and auto sales (steady at a healthy pace for four straight months now) moved up.

The Macro Note

The jobs report deserves a careful read, because its headlines point in opposite directions. Payroll growth was weak, yet the unemployment rate actually fell, to 4.2%. The catch is why it fell: fewer people were working or looking for work — participation dropped to its lowest level in over five years. So this isn't a story of companies cutting staff; layoffs remain historically low, as do weekly claims for unemployment benefits. Companies simply aren't hiring much, and fewer people are showing up to be hired. The labor market is frozen more than it is breaking — which is a meaningful part of why we continue to see low recession risk, even as the growth data cools.

Meanwhile, demand stays surprisingly warm — and, notably, it's real demand, not just higher prices dressed up as growth. Weekly chain-store sales are running at roughly double their long-term pace even after accounting for inflation in the goods they sell (prices for everyday goods outside of food and energy actually declined last month). Unit auto sales, job openings, and freight volumes all corroborate: the volume is genuine.

That's precisely what keeps the inflation question alive. Market-based inflation expectations, which had been falling steadily as oil retreated from its wartime highs, stopped falling this week and edged slightly higher — even in the face of that soft jobs number. And upstream, producer prices have been rising at rates we haven't seen in years; those costs reach store shelves with a lag of a few months. Real demand holding firm into that pipeline is how inflation broadens rather than fades. The June inflation reports arriving over the next few weeks — the first to reflect oil's full round trip from its spike — will tell us a great deal.

One more tell worth noting: gold snapped a four-week decline and rallied as markets dialed back the odds of a rate hike later this year. That's the pattern we've described before — gold in this cycle trades on interest-rate expectations, not on fear.

Put it together and you get the environment we've been positioned for: an economy that's slowing but not stalling, a labor market cooling without cracking, and an inflation question that has yet to be answered. That mix argues for what we own — a globally diversified portfolio balanced across financials, real assets, gold, dividend-paying quality, and a healthy cash reserve earning attractive short-term yields — and for the patience to let the next few weeks of data speak before drawing louder conclusions.

We'll keep you posted.

This material is provided for informational purposes only and does not constitute investment advice or a recommendation or solicitation to buy or sell any security. Past performance is no guarantee of future results.

*Prepared by Marty Mazorra, Chief Investment Officer, Private Wealth Advisors. Research synthesis and drafting assisted by AI tools under advisor review.