This Is What The Fed Will Do Next Week Following Awful August Jobs Report—The Worst Since COVID-19

Key Concepts:

• Job Market Weakness: Deteriorating job reports, rising unemployment rate.
• Federal Reserve Rate Cuts: Anticipated rate cuts and their limited impact.
• Tariffs: Negative impact of tariffs on business hiring and economic activity.
• Recession Trade: Market reactions indicating recessionary concerns.
• Diversification: Importance of owning uncorrelated assets.
• Gold Rally: Factors driving the rally in gold prices.
• Q3 Earnings & Q4 Guidance: Expectations for upcoming earnings season and future outlook.
• K-Shaped Economy: Disparities between AI tech leaders and other sectors.

1. Job Market Analysis

• Awful Job Report: August job report showed only 25,000 jobs added, significantly below the estimated 75,000.
• Downward Revisions: Previous two months' job reports were revised down by an additional 20,000 jobs.
• Worst Since Pandemic: July 2025 was the worst job report in the US since the pandemic.
• Rising Unemployment Rate: The unemployment rate is rising, currently at 4.3%, above the estimated 4.2% and last month's 4.1%.
• Labor Force Challenges: People leaving the workforce and new graduates face difficulties entering the labor force.
• Long-Term Weakness: Expectation of a weak job market and economy for the foreseeable future.

2. Federal Reserve and Monetary Policy

• Anticipated Rate Cuts: The Federal Reserve is expected to cut interest rates at their next meeting, possibly by 25 or 50 basis points.
• Limited Impact: Rate cuts are unlikely to significantly fix the economic problems.
• Non-Monetary Problem: The core issue is not access to credit but business uncertainty and tariff-related profit margin declines.
• Fed's Limitations: The Federal Reserve cannot fix issues like business hiring reluctance, reduced international travel, or consumer spending fears.
• Alternative Solutions: Rolling back tariffs is suggested as a potential solution, despite credibility concerns.

3. Market Reaction and Investment Strategies

• Classic Recession Trade: Stocks down, treasuries and gold rallied, Bitcoin and oil down.
• Risk Asset Decline: Risk assets like NASDAQ, Bitcoin, and oil stocks were hit hard.
• Recession Pricing: Traders are pricing in a potential recession.
• Diversification Importance: Stress on owning uncorrelated assets (stocks, bonds, gold, crypto, oil) for all-weather performance.
• Gold Rally Drivers: Economic uncertainty and aggressive cuts to the front end of the yield curve.
• Fund Allocations: Expectation of increased fund allocations to gold.

4. Q3 Earnings and Q4 Guidance Preview

• Q3 Uncertainty: Uncertainty about Q3 earnings performance.
• Weak Q4 Guidance: Expectation of poor Q4 guidance from companies.
• Bellwether Warnings: Companies like Lululemon, Walmart, UPS, FedEx, and John Deere are guiding for a challenging future.
• AI Exception: AI companies are the only ones reporting better-than-expected guidance.
• K-Shaped Economy: The economy is divided between thriving AI tech leaders and struggling sectors.

5. Notable Quotes and Statements

• "July of 2025 was as bad of a job report as we have had in 5 years as a country."
• "Fed rate cuts will not do that much here to fix it. This is not a problem of access to credit."
• "The Federal Reserve can't fix the fact that businesses don't want to hire."
• "Own assets that do well, not just when the economy does great, but also when the economy does bad."
• "We are in this K-shaped economy. We have the AI tech leaders and they're doing great. And then we have everyone else who's struggling and hanging on by a string."

6. Technical Terms and Concepts

• Basis Points: Used to denote changes in interest rates (e.g., 25 or 50 basis points).
• Uncorrelated Diversification: Investing in assets that do not move in the same direction under similar market conditions.
• Yield Curve: A graphical representation of yields on similar bonds across different maturities.
• 13Fs: Quarterly reports filed by institutional investment managers disclosing their equity holdings.
• K-Shaped Economy: An economy where different sectors grow at vastly different rates, leading to increased inequality.
• Tariffs: Taxes imposed on imported goods.

7. Logical Connections

The video connects the weak job report to the Federal Reserve's expected rate cuts, arguing that these cuts will be ineffective due to the nature of the economic problems. It then links the economic concerns to market reactions, highlighting the "recession trade." Finally, it previews the upcoming earnings season, suggesting that Q4 guidance will reflect the ongoing economic struggles, except for the AI sector, illustrating a K-shaped recovery.

8. Data and Statistics

• August job report: 25,000 jobs added vs. 75,000 estimated.
• Unemployment rate: 4.3% (above 4.2% estimate and 4.1% previous).

9. Synthesis/Conclusion

The US economy is facing significant challenges, as evidenced by the weak job market and rising unemployment. While the Federal Reserve is expected to cut interest rates, these actions are unlikely to provide a substantial fix due to the underlying issues of business uncertainty and the impact of tariffs. The market is reacting to these concerns by pricing in a potential recession. Diversification into uncorrelated assets like gold and treasuries is crucial. The upcoming earnings season is expected to reveal further economic struggles, with the exception of the AI sector, highlighting a K-shaped economic divide. The speaker suggests that addressing tariffs could be a more effective solution, but acknowledges the political challenges in doing so.