Personal consumption represents over two-thirds of economic activity. Therefore, consumers’ ability to spend, i.e., income, is vital to the economy. Taking it one more step, confidence in the security of our jobs and wages drives the marginal consumption behaviors of most citizens. With that, we share a chart that should worry the Fed. The chart below, courtesy of The Daily Shot, shows that the University of Michigan survey of real household income expectations is plummeting. Moreover, the index is at its lowest since at least 2005.

There is a robust correlation between the unemployment rate and economic activity. This relationship is logical. When consumers are confident in their job security and the ability of wages to keep up or exceed inflation, they are more willing to spend. Conversely, if they fear the possibility of a layoff or a wage that doesn’t keep up with inflation, they tend to save. While labor market data is generally good, there are signs the labor market is at a standstill. Continuing jobless claims are steadily rising and at their highest level in over three years. The JOLTS hires rate is at ten-year lows. While the number of layoffs remains low, employers aren’t hiring either. Accordingly, the broad labor market data may seem good, but the chart below and other data should give the Fed pause that consumers may start to spend less and save more.

Check out the Tweet of the Day as if the chart below wasn’t concerning. It shows employment expectations are also plummeting. Similar changes in expectations have led to a higher unemployment rate previously.

What To Watch Today

Earnings

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Economy

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Market Trading Update

In yesterday’s post, we discussed the “DeepSeek” market selloff. Money ran out of the high-flying stocks yesterday and into defensive names, improving the overall breadth of the market. We noted that investors should be patient and wait for the market to digest the news before taking action, particularly in selling A.I.-related names.

Yesterday, the market rallied after holding support at the 50 and 20-DMA as money rotated immediately out of the “safety” names and back into the “risk” names. The biggest winners yesterday were losers, and vice-versa.

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This type of market turmoil is very difficult to navigate, so we suggest managing risk and rebalancing allocations regularly but avoiding making sweeping changes based on media headlines.

As noted, the market continues to hold technical support, breadth is improving, and the bullish trend remains intact. However, there is a risk of further disruptions this week with today’s Federal Reserve meeting, plenty of economic data, and the “Mega-Cap” earnings parade starting this afternoon.

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As my Dad used to say, just before something terrifying would happen, “Buckle Up, Buttercup.”
 

Crypto Has A Supply Problem

One of the benefits touted by cryptocurrency traders and investors, including coins and tokens, is their limited supply. The President and co-founder of one of the largest crypto exchanges, Coinbase, should give crypto investors pause. Per Brian Armstrong, Co-Founder and CEO of Coinbase:

We need to rethink our listing process at @coinbase, given there are ~1m tokens a week being created now and growing. High quality problem to have, but evaluating each one by one is no longer feasible. And regulators need to understand that applying for approval for each one is totally infeasible at this point as well (they can’t do 1m a week). It needs to move from a an allow list to a block list, and utilize customer reviews/automated scans of onchain data etc to help customers sift through.

One million coins hitting the market a week is a problem but not one we would deem a “high-quality problem.” So much for the idea of “limited supply. The supply of each coin or token may be limited, but the supply of all coins and tokens is limitless.

DeepSeek DeepSinks Bullish Exuberance

There are two important points that investors should consider:

First, everyone is suddenly an expert on DeepSeek and AI in general. Yes, there are certainly potential consequences to an AI that can potentially run more efficiently than other large-language models (LLMs). There are also many benefits that will come from increased competition. The latter was a point we discussed on Monday’s Real Investment Show: DeepSeek just started the “CyberSpace Race.”

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