The lush American stock markets had one of their historic days yesterday. Because a very strange employment data came. It was way beyond everyone's expectations, including mine. This changed all our future projections regarding the American economy. America is not in recession and may be returning to a period of very rapid growth. If yesterday's data is correct and because of this, bitcoin, gold, stocks, oil, all the asset prices you can think of have changed. The interest rates of American treasury bonds have increased and I think a lot will change in the coming days if we trust yesterday's data. I will explain why we should trust that data today. But first, let's accept that data and try to read the future from it. Then we will discuss the accuracy of the data a little.
First, let's take a look at the markets. The lush technology stocks went up rapidly. There was a 1.69% climb in Nvidia yesterday. Google, Apple, Meta, Amazon, Tesla had been in a loss for two days, supposedly because the sales figures were a little lower than the targets. It quickly recovered yesterday. There is a serious recovery in the financial sector. Berkshire Hathaway, which I am also an investor in, increased by 1.99 yesterday, JP Morgan increased. There were decreases in Utilities and Basic Materials, which have been rising for a long time due to concerns that America may enter a recession. There are decreases in real estate in certain companies. Because yesterday's news pulled interest rates back up in America, but there were mostly green tables and graphs. When we looked at the indexes yesterday, S&P has increased by 20.57% since the beginning of the year. It is currently a little behind its highest peak. Nasdaq has currently increased by 19% since the beginning of the year. It is quite a long way from that peak, it seems to have a long way to go. The equally weighted S&P 500 seems very close to its peak again. Dow Jones peaked yesterday. Russell 2000 is a little behind its peak, but it also made a serious attack yesterday.
The collapse of the American stock market that the rote learners are waiting for is not coming. The rally has been continuing since October 2022. We have entered the second year of the rally. By the way, this is not a very long rally. There are much longer rallies in the American stock market. The increases have been going on for 2 years. Some stocks in my portfolio were also very happy yesterday. Sofi increased by 6.5% in a single day. Rocket Lab by 4.91%, Vistra Corporation by 4.11%, Tesla by 3.11%, PayPal by 2.37%, no need to go into detail about all of them, it was a good day. Why did the stock markets increase so strongly? Because the employment data was fascinating. It was expected to be between 140,000 - 150,000, 254,000 new jobs were opened in the United States in the last month. This is what excited the markets. This is because it shows that America is not in recession. On the contrary, if the numbers are correct, America seems to be heading towards a new recovery period.
If we look at the details a little bit, there is also an increase in hourly incomes. It was expected to be 0.3%, it became 0.4% monthly. It was expected to be 3.8% annually, it became 4%. This shows that citizens have the power to spend money. When we look at non-agricultural employment, 147,000 was expected, 254,000 came. When we exclude the public sector, 125,000 was expected, 223,000 came. In other words, no matter how you look at it, it is a tremendous employment report and unemployment has dropped to 4.1%. As you know, there was great panic in the markets 2 months ago when it went to 4.3%. I thought it was temporary, I had predicted a drop to 4.2%. But frankly, I did not imagine a decline in unemployment from 4.2% to 4.1% yesterday. This is actually a number very close to full employment. In order for employment to be 100%, the skills of the people who are sought must match the positions. Since this is practically impossible, we are at the closest number to full employment.
Interest rates have been very high in America for 2 years, money has been restricted. Despite this, unemployment is only 4.1%, if the data is correct, we have a tremendously vibrant and strong economy. So how were the asset classes affected by this yesterday? When we look at the indexes, the Dow Jones closed the day up 0.81%, the S&P 500 up 0.9%, the Nasdaq up 1.22%, small stocks up 1.28% and the volatility index exceeded 20. It was in a slightly worrying place. It pulled back rapidly yesterday, losing 6.25%. Of course, there were fluctuations in commodity prices. When the US dollar rose, gold and silver suffered losses, small losses. On the other hand, there were increases in commodities such as crude oil, Brent oil, and copper, which are used in all industries or are a part of the economy. Of course, the Iran-Israel war triggers these. But the real important issue is what is happening with US treasury bonds. 10-year bonds approached almost 4% again yesterday. If I remember correctly, they had dropped to 3.6% last week. There was a very rapid climb here.
The reason for this was that recession was being priced in. Now, recession is not being priced in, on the contrary, the revival of the American economy is being priced in. This is of course very interesting. Because the FED lowered interest rates, but interest rates actually increased. Because when the data came out indicating that the economy was very vibrant with the FED interest rate cuts, the markets started to believe more in America's soft landing. Therefore, the market believes that interest rate cuts will be slower in the coming period. Despite this, it also thinks that the economy will do well. Normally, when treasury bond interest rates increase, we expect stocks to fall. This is the main reason why both of them rose yesterday. Because it seems like a soft landing will work. Therefore, they both went up yesterday. But normally, if the pressure on treasury bonds continues, this may affect stocks after a while. We will come to what can continue the pressure on treasury bonds in a moment.
Of course, the market's view on the FED interest rate cuts also changed immediately. There is a very radical change. Right now, 7.1% of the market says the FED may not lower interest rates at all at the November meeting. This was zero before, the day before. It was zero again last week. The probability of an interest rate between 4.50% and 4.75%, or a 25 basis point interest rate cut, has increased to 92.9%. The day before, it was 72.5%. The week before that, it was 51.9%. On the other hand, the market definitely does not see a 50 basis point cut anymore. The probability was 48.1% the week before, it had decreased to 27.5% the day before, and yesterday the probability was zero. In other words, the market says that the FED will at best reduce rates by 25 basis points. In fact, it may not. Especially next week, Thursday and Friday inflation data are coming. The consumer price index is coming on Thursday, and the producer price index is coming on Friday for America. If there is any movement there, the probability that the FED will not reduce rates will increase, my guess is in my probability calculations. If inflation is reasonable, the market sees a 25 basis point cut, and Powell had already made a similar statement. So Powell was familiar with this data.
Powell said that under normal conditions, we will finish this year with two more interest rate cuts of 25 basis points each. Interest rates will most likely continue to fall. Because after all, if there is no excessive movement in inflation, the difference between real interest and inflation has widened. But if inflation moves upwards again, things are difficult. I do not expect much change in inflation in September, but October is a bit dangerous. Because labor wages have increased. There is a situation close to full employment. When we look at the detailed data, employment has increased a lot, especially in sectors such as tourism, entertainment and construction. This also shows a recovery. This creates inflationary pressure. The war between Iran and Israel puts pressure on oil. China's abundance of money to combat deflation creates pressure on prices again. It is possible that inflation will rise again in October. Of course, the rate of this is important.
Because as far as I can see, what is important for the FED right now is not to put America into recession, the markets loved it by 50 basis points as of last week. They may regret this next week. If inflation moves upward again. Our lives are going through such a cycle. I had been a bit cold towards TLT for a while. Because I thought that inflation fears might revive in America, that the idea that there would be no recession would be bought and therefore the interest rates of treasury bonds would increase. Indeed, TLT experienced a sharp decline yesterday. Well, Bitcoin did not do much in all this noise, to be honest. There was a slight climb yesterday, but it was not very meaningful. Bitcoin continues to crawl, I did not look at other altcoins. Bitcoin is not very happy with yesterday's developments at the moment because it seems that the abundance of money will be delayed.
Now, if I were to summarize, America will definitely not enter a recession this year if yesterday's data is correct. If this data is correct, the American economy is reviving again. This could create inflationary pressure. For this reason, the market currently thinks that the FED will be a little more modest in terms of interest rate cuts. If inflation is high next week, it may say that there will be no interest rate cuts. The market is currently increasing both the interest rates of treasury bonds and stocks. Because the market believes that there will be no recession. But if inflation is too high, this time treasury bonds will rise even more but may put pressure on stocks. This whole environment is not very good for crypto. Because our base case was that money printing would start at a high speed by the end of the year and interest rates would fall very sharply. The current picture does not show this, but of course all this is valid if this employment data is correct. If it is correct, remember that the market was hit hard in August and September because employment was bad. Yesterday, they received a revision and we learned that employment was actually better than reported at around 77,000. In other words, we were beaten for nothing.
There are many data revisions in this employment data. I think there are some factors that distort the employment data for this period. As you know, it was known that dock workers would go on strike in America. Anyway, it was good that the strike ended in 3 days, they postponed the strike for now. Due to the possibility of dock workers going on strike, they made employment in some sectors in advance and maybe increased their production and stocks. I think it is possible that it will decline a little next month and I believe that some of that employment is temporary. Another important issue is that when we look at the details of the employment data, I see that there is no increase in working hours. It decreased from 34.3 to 34.2, on the contrary, there is no increase in working hours. But they are hiring new workers, some of these workers may be laid off next month. Because normally working hours should increase due to productivity. I think there may have been such temporary hirings here.
When we look at it as a sector, employment is a little stronger in the services sector and employment transitions can be faster there. For this reason, I would not want to make a decision by just looking at this report. Also, do not forget that America is entering the elections. This data can be manipulated to some extent in the election year. Because this is just a survey. This is data obtained through a survey and we know that there are often mistakes in those surveys. For example, a new data shows us that; This year, companies' participation in these types of surveys is a little lower. Again, we know that while unemployment is increasing, participation in surveys is decreasing even more. Because companies do not want to say that they are in a bad situation, the companies that participate here may be companies that are already in a good situation. In other words, we still have these risks, I do not fully trust the data. There may be a serious revision to this data later. I expect a downward revision this time and my guess is that the employment data to be reported in November will not be this strong.
Therefore, of course, we liked yesterday's earnings very much, but my investment assumptions have changed a little. Because if this data is correct, the FED's interest rate cut is slowing down. The abundance of money is slowing down and if high inflation comes on top of this, the interest rates on treasury bonds will go up even more. This will definitely put pressure on all risky assets such as stocks and Bitcoin. Yesterday's party was great. Because everything looked good. But we have such a new risk chain ahead of us. Frankly, I would be happier if employment came to around 140,000 - 150,000, in line with expectations. In that case, the FED's interest rate reduction program would not have changed and we would not have seen a recession. Now, let alone a recession, it seems like we have a strong economic recovery. In this case, it is even possible for the FED not to make interest rate reductions at all.
In this context, I am happy with the money we earned yesterday. But I think our risks have increased, not decreased. I would have preferred a slow-moving American economy without a recession. Now, there is a fast-moving American economy without a recession and if the data is correct. This could change everything in the coming days. What I said may have been a bit confusing. But I think the market is confused anyway and there is no guarantee that these increases on Friday will continue next week. I think we will enter into a worried inflation expectation towards Thursday - Friday.
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