Election Trade: The Curve Winks and the Sky Stays Put
A steepening yield curve that winks, a padded JOLTS print and a routine correction: the macro read behind the latest US election trade.
A Wink Where a Scream Belongs
Every textbook I own says the same thing about a yield curve that steepens after a long inversion: the recession has arrived and equities have a few months to notice. The reflex is so ingrained that the steepening alone sends people to cash. The letter takes the other side of that reflex. Look underneath the curve and the usual villain is missing. Real consumer spending is holding, payrolls keep landing close to where they were, and personal income is rising. A curve steepening against that backdrop reads less like a siren and more like a knowing look from across the room. Leading indicators point to a stretch of unremarkable months, and the crowd's soft-landing story, for once, has the data on its side.
None of this abolishes the cycle. The point is narrower: the shape of the curve is a symptom, and the same symptom has different causes in different years. When the patient is spending, earning and employed, a steepening stops carrying the automatic verdict the charts attach to it.
Theatre in the Openings Column
The JOLTS report gives the sceptic something to chew on. Private employers posted their fewest openings in six years while government postings jumped. Read the two lines together and the arithmetic looks arranged: an administration heading into a vote has every incentive to keep the headline vacancy count respectable, and a surge in public hiring does exactly that. I expect theatre from politics in an election season and would be disappointed by anything less. What interests me sits further down the release. Quits fell, and fewer workers walking out on their own means fewer workers convinced a better offer is waiting. That is a softer labour market than the headline admits, though softer is a long way from broken.
For positioning, the split matters more than the total. Government hiring flatters the count without adding much private demand, so the growth signal is weaker than it looks and the fear signal is weaker than the bears want. Both fade, and what remains is an economy still working, with a labour market cooling at a pace nobody has to panic about.
The Tune-Up Before the Vote
Corrections in a bull year come with the territory. Stocks have risen in roughly seven years out of ten across the record, and the deep corrections, the kind that get their own graphics on the evening news, are rarer than the coverage implies. The present pullback carries none of the marks of the bad ones. No bank is failing, no lockdown is emptying the streets, no credit market has seized. It looks like the routine servicing a long advance demands, humbling the people who mistook the last leg for a birthright and flushing out leverage that had piled up for no better reason than that prices kept going up.
This is where it turns into an options question. A correction the crowd insists on treating as the opening act of something bigger inflates the price of protection, and if the letter is right about the economy, the realised path disappoints that fear. The gap between what fear pays and what actually happens is the margin an options desk lives on. Election season adds its own layer, with the vote priced as a discrete event on top of the ordinary drift as the calendar closes in. The latest US election trade is in the Subscriber Chat; the mechanics stay there.
The prints I keep in view are the ones holding the argument up: real PCE, payrolls and personal income, because if any of those turn, the wink from the curve becomes the scream the textbooks promised. After those, the quits rate as the honest line in the jobs report, and the private versus government split in openings as the measure of how much of the labour market is stagecraft. Momentum is the last item. A pullback that holds its trend is a tune-up; one that breaks it starts a different conversation, and I would rather have the discipline to notice than the ego to argue.
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