Our intro to this week's macro roundup consists simply of a handful of key/telling market highlights from my commentary over the past couple of weeks.
If you’d truly like to glimpse the forest through the trees, the macro note itself -- in terms of what’s happening below the surface and how we’re positioned for it -- is a must-read!
Highlights:
July 31:
"....today's market is searching for direction amid what would be late-cycle dynamics exacerbated by a geopolitical situation that itself is sorely in need of direction -- or, let's say, in need of a durable solution."
July 28:
"...it's been my observation over the past 40+ years of doing what I do that folks tend to see their long-term portfolios as extensions of the US equity market.
For many, if not most, US investors, I do believe that's a reasonable impulse... But as for today's PWA client, well, no... In our view, particularly late in the cycle (i.e., now), broad sector, regional and asset class diversification is the definition of responsible portfolio construction.
Now, of course that's not simply shot-gunning your money across everything that moves, we do have theses that we "work" every day across different time frames... Meaning, we'll have a near-term view that may inspire the hedging of -- or the leaning into -- a position that happens to jibe perfectly with our long-term thesis, yet we see high odds of meaningful short-term turbulence..."
July 21:
"As I've maintained since the beginning of the year, even throughout the Middle East conflict, we remain (for the moment) constructive on global equities.
Although that sentiment is on a pretty short leash... I've also maintained that we see not-small headwinds developing (per the 3rd paragraph in your morning wrap below) as we meander into the end of this year and on into next."
July 17:
"...the tech space continues to suffer amid worries over the odds (or lack thereof) that the trillions being spent on AI will equate to sufficient future profits for those doing the spending, exacerbated overnight by competing developments out of China... While the Iran conflict remains a wildcard with political ramifications sufficient to keep the market anticipating compensating de-escalatory headlines every time things heat up (like the present)."
Here's today's PWA Index scoring summary followed by this week's note:
When Good News and Bad News Arrive Together*
Week of August 3, 2026
Last week produced one of the strangest combinations of economic data we have seen in some time. The July employment report showed the economy shed jobs for the first time this cycle, and revisions erased more than a hundred thousand jobs previously reported for May and June. On the same Friday, stocks closed at highs and posted their best week since the spring.
That is not a market ignoring bad news. It is a market reading a genuinely divided economy, and we think the division is worth explaining, because it is likely to shape the next several months.
Two economies, moving in opposite directions
The manufacturing and industrial side of the economy just posted its strongest month in more than four years. Factory activity accelerated sharply, production reached its best level since late 2021, order backlogs are rebuilding, and factory employment expanded for the first time in nearly three years. Freight rates surged. Announced corporate layoffs fell to their lowest monthly total in two years, and announced hiring plans were the strongest for any July since 2022.
The household side of the economy did the opposite. Hiring stalled. Job openings declined, led by health care, which has been the single largest source of job growth for two years. The share of Americans working or looking for work declined again. Mortgage applications fell as the thirty-year rate reached its highest level in over a year. And the personal savings rate sits at a cycle low while credit card balances have started expanding again.
Both of these things are true at once. The economy is not uniformly strong or uniformly weak — it is running a capital investment and industrial cycle at full speed while the consumer side idles.
Why the unemployment rate fell anyway
The reported unemployment rate actually improved in July, to 4.1%. That did not come from hiring, and the reason is worth walking through carefully, because the obvious explanation turns out to be mostly wrong.
The unemployment rate counts people looking for work as a share of the labor force. When people stop looking, they leave the labor force, and the rate can fall even when no one has been hired. The natural assumption is that this is discouraged workers giving up. Research published by the Federal Reserve Bank of St. Louis in early August looked carefully at the decline in the share of Americans participating in the labor force this year and found something different. Roughly 43% of it traces to a technical revision the government made in January to its population estimates, which shifted the estimated age mix of the country toward older people. That is a measurement correction, not people leaving work. Another 16% is ordinary population aging, which is real but glacial. The remaining 41% was genuine change in behavior — and nearly all of it happened in a single month, June, before partially reversing in July.
Worth noting on the retirement question specifically: participation among Americans 65 and older actually rose. That group pulls the national average down by becoming a larger share of the population, not by retiring in greater numbers.
The number that puts the jobs report in context
Here is the piece of context we think matters most, and it is not in the headlines.
Economists track something called breakeven employment growth — how many jobs the economy needs to add each month just to keep the unemployment rate from rising. That figure depends heavily on how fast the working-age population is growing, which in turn depends heavily on immigration. Net immigration has fallen sharply, and estimates of breakeven have fallen with it: from roughly 150,000 jobs a month a year ago to somewhere between 15,000 and 90,000 today, with most estimates clustering near 50,000.
Measured against that bar, a decline of 23,000 jobs is a modest shortfall rather than a collapse — and the average of about 34,000 jobs a month over the past year sits right around the low end of what is needed. That is the best explanation for why unemployment is at 4.1% and not climbing.
This matters for a practical reason. It means the labor market is weaker than the strong readings of a year ago but not obviously weak enough to force the Federal Reserve's hand in either direction. Investors spent Friday afternoon concluding that a rate increase in September is now unlikely.
There is also a second, quieter detail in the report that we are watching closely and that no measurement caveat explains away. The number of people on temporary layoff rose sharply. New claims for unemployment benefits remain very low, but people who do lose a job are taking longer to find the next one. Firing has nearly stopped in this economy — but so has hiring. That combination can look stable for a long time and then change quickly.
The inflation picture actually improved
Here is the part that explains the market's reaction. Wage growth slowed to its lowest annual pace since 2021. More importantly, productivity growth came in well above expectations, which meant labor costs per unit of output rose only modestly — a combination consistent with inflation moving back toward target rather than away from it.
That distinction is worth a moment. Slower wage growth caused by a shortage of available workers would be a warning sign. Slower labor costs caused by workers producing more per hour is the healthy version, and the productivity figures point toward the second explanation.
Energy prices fell meaningfully on the week as negotiations over Middle East shipping continued, though we would note that the physical movement of oil through the region has not yet recovered in any comparable way. We continue to weigh actual shipping volumes more heavily than headlines about negotiations, and by that measure the situation remains largely unresolved.
Taken together, softer wage pressure and lower energy prices reduced the odds that the Federal Reserve raises rates at its September meeting — from roughly seven-in-ten a week earlier to closer to four-in-ten. Interest rates fell across maturities. That repricing, more than anything about the underlying economy, is what lifted stocks and gold.
Where our internal conditions gauge stands
Our internal conditions gauge rose for a second consecutive week and now sits at its highest level since March 2022. We want to be precise about what that means and what it does not.
The gauge tracks sixty-seven separate readings across consumer activity, business activity, the broad economy, inflation, commodities, and financial markets. It rose because the business, commodity, and market categories improved substantially. It rose despite the consumer category deteriorating, because only one of those six categories measures the household directly.
We say this plainly: the reading improved in a week the labor market weakened, and we do not want that number read as an all-clear. It accurately describes an economy where the industrial and investment cycle is strong. It is less well equipped to capture how much of the recent improvement in inflation has come from households absorbing higher costs through a lower savings rate and slower real wage growth. That is a form of relief, but it is one with a limit.
How we are positioned
We continue to hold meaningful exposure to the industrial, infrastructure, and technology-capital-investment areas of the market, which is where last week's data was strongest and where corporate spending continues to show up in hard economic figures rather than only in company commentary. Our precious metals exposure performed well and behaved exactly as we expect it to — responding to falling interest rates rather than to geopolitical headlines, which has been consistent all year.
We remain deliberately diversified across areas that do not move together, including international and emerging market exposure, and we continue to hold a meaningful cash reserve. We are not making a large directional bet on which of these two economies wins. We would rather own both and let the data resolve it.
The inflation report due August 12 is the most consequential item on the near-term calendar. It will determine whether last week's relief in interest rates holds or reverses, and we will be watching it closely.
This commentary is provided for informational and educational purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation regarding any security, sector, or investment strategy. The views expressed reflect the opinions of Private Wealth Advisors as of the date written and are subject to change without notice. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Past performance is not indicative of future results, and all investing involves risk, including the possible loss of principal. Nothing contained herein should be construed as personalized investment, tax, or legal advice.
*The section titled "When Good News and Bad News Arrive Together" was drafted with the assistance of artificial intelligence tools under the direction and editorial review of Marty Mazorra, Chief Investment Officer of Private Wealth Advisors. All analysis, conclusions, and final content are his own.
No comments:
Post a Comment