- Big downside misses in employment have an already bearish investor base running for the doors. A firming in the economic data is needed without any help from the Fed for markets to find support and get back on track.
- It’s not clear whether the FOMC had the employment data when determining monetary policy this past meeting, but it’s possible they will need to announce a pivot to stamp out fears. The worst-case scenario would be inflation picking back up right when unemployment does the same. I see this as highly unlikely.
- Absent macroeconomic firming or monetary easing, deflation and recession become the primary risks to the market. In this scenario, a positive feedback loop of lower lows and lower highs would introduce the next bear market.
- Regardless of market prospects, there will be a point where markets rally. Should a bull trap form, investors should reduce exposure to risk until it’s clear the market will be supported or find its footing.