🤬 A stressful week, Mad Libs edition

Hey hey, happy Monday!

Whew, that was a week. The most volatile week in the stock market since the depths of the 2022 market crash, according to my calculations. Mix together a few lousy economic reports and an administration that snip-snaps decisions at the drop of a hat and whew…no wonder we’re all exhausted.

Let’s talk about what happened using Mad Libs.

No, we’re not rewriting reality (although that does sound like a fun stress reliever). Instead, we’re going to use the next six minutes to examine all of the crazy terms thrown around lately, and why you should take them seriously. 

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Wall Street can feel like a game of Mad Libs gone awry.

Stocks fell this week amid worries of (weird jargony phrase) from (vague policy) and a slowdown in (main economic indicator). Except, at the end of this game, you want to yeet your entire portfolio off a cliff, not trade papers for the lols.

When the system is under stress, the Mad Libs explanations get even more jumbled and confusing. 

That’s what we’ll sort through today: the week that was, and all the crazy Mad Libs-esque terms that came out of it.

Payrolls and underemployment

Let’s start with some relatable terms that matter a lot in your daily life – and of course, on Wall Street.

On the first Friday of most months, we get a government-produced report on just how healthy America’s job market is. How many jobs companies are adding to – and cutting from – their payrolls, how many hours people are working, how much their paychecks are changing. Basically, everything you need to know about hiring and firing in one big data dump.

Well, February’s data dump came out bright and early on Friday morning. And in investors’ eyes, it was alarming.

Payrolls – or the total number of jobs at public and private U.S. firms – rose by 151,000 in the month. Sure, companies are still hiring people, which is enough to tell you that the economy is at least OK.

But that 151,000 gain in payrolls was under the 160,000 that economists expected from the report, which caused a few whispers around why Wall Street overestimated the strength of hiring.

The unemployment rate climbed – albeit for good and bad reasons. The number of employed working-age people dropped. Hours worked came in at a four-year low. Underemployment – the percentage of the workforce in part-time jobs or roles that don’t match their skill level – jumped the most since 2020 (and before that, 2009).

Complicated words, clear story. The job market is breaking down again — and potentially quicker than many expected

Not a good sign when you consider that the job market is the central nervous system of the U.S. economy.

When people earn money, they’re more likely to spend that money. And Americans are the best in the world at spending money – consumer spending makes up 70% of our nation’s economic output.

Challenger, Gray & Christmas

There was also one particular detail about the job market that shocked people – but it came from a separate data dump.

This brings us to Challenger, Gray & Christmas – an executive career transition firm with a name that sounds like it came from a holiday-themed Mad Lib.

Challenger, Gray & Christmas also produces a monthly report on layoffs at U.S. companies – how big they are and which industries are affected — and it happened to drop on Thursday. Great timing, I know.

Usually, it’s a snoozer of a report, but not this time!

According to Challenger, Gray & Christmas, public and private layoffs surged in February to the highest level since mid-2020. 

While that headline in itself was enough to raise eyebrows, the industry-level detail was what really caught my eye.

Out of the 172,000 reported layoffs, about 62,000 were in government jobs.

Remember those massive DOGE-related government layoffs a few weeks ago? There have been a lot of guesses around how many jobs were cut, but this was the first hard number I’ve seen.

It’s a huge number, too, considering the government’s average layoff count has been around 2,200 over the past 10 years.

Retail layoffs also soared last month, adding an extra layer of worry to a depressing report. Stores often cut jobs when people aren’t spending as much money.

The worst part? Many of these layoffs weren’t included in the government’s jobs report because of a quirk around the timing of each report’s data collection.

So, Challenger, Gray & Christmas’ layoff report could be sending us a letter from the future.

On top of bad February data, we may also get a horrible March jobs report.

God, this is the worst Mad Libs ever.

The Nowcast

Enough about the job market, which deserves all the attention it’s getting.

We need to talk about the Atlanta Fed’s GDP Now forecast (or the “Nowcast”, as economists like to call it). It’s the Federal Reserve Bank of Atlanta’s estimate of gross domestic product (or the size of our economy), broken down by different components. A gauge that was almost certainly cooked up at an economist’s Mad Lib party because it’s been a hot topic in nerdy social circles for years. 

This week, however, the Nowcast made headlines because it plunged into negative territory – insinuating that the economy may be shrinking.

Now, I get it. It’s human nature to gawk at dramatic charts, especially those with lines that drop down and to the right.

But as tempting as it is to cook up a scary story around the Nowcast, I need to be real with you: this is not the Mad Libs section to freak out about.

Look at the Nowcast’s charts and you’ll see that the entire decline comes from trade – or exports minus imports in the GDP formula.

Why are trade numbers so weird at the moment? Companies chose to front-run major tariffs by ordering a bunch of materials and parts at the beginning of this year. Trade and manufacturing data for January and February has started to show this phenomenon, which has led to a burst of imports (compared to stable exports).

Supposedly, a big chunk of these imports were non-monetary gold shipments, too. The Fed Bank of Atlanta actually posted an adjusted Nowcast that projects a 0.4% rise in GDP this quarter when you strip out gold.

This isn’t all roses. Businesses are showing us that it’s tough to maneuver around tariff-related uncertainty. Still, the Nowcast’s big drop isn’t about consumer spending (yet), so it’s not the harbinger of doom that some people are making it out to be.

Stagflation

Ah yes, the final boss of Wall Street Mad Libs: stagflation.

There’s a lot of power packed into this 11-character word. It’s a term to describe an economy in which unemployment is rising, prices are increasing and output is stagnant or shrinking.

However, people tend to adopt some generous interpretations of stagflation when they’re nervous about both the economy and prices. Or, you know, when they want to evoke memories of disco balls, poofy hair and global squabbles from the 1970s.

These days, stagflation has found its way back into casual conversation. Especially after the White House enacted 25% tariffs on all Canadian and Mexican imports – with special waivers for energy supplies and Amazon trinkets –  along with an additional 10% of tariffs on Chinese goods.

Prices are slowing while layoffs are surging and the Nowcast is plunging?! Look out, it’s a classic case of stagflation!

Or, you know, a classic case of ___flation. Because in this moment, any silly choose-your-own-adventure word here is probably more accurate than pulling the stagflation card.

We still have a lot to learn on the economic front.

For one – we don’t know how long these tariffs will stay in place. In the six days since the latest round of tariffs took place, the administration has already made exemptions for about half of affected foods. You’ll probably notice higher prices in your lives, but not on necessities like produce just yet.

Also, we conveniently forget that there are counterbalances to consider here. A slower economy often leads to tamer inflation because companies can’t pass along costs as easily. We don’t know how this math will work out yet.

This is why actual stagflation is so rare. We’ve only seen it appear in three of out the past 55 years. Still, it’s one of the deepest trenches the economy can find itself in, because there are multiple crises you have to solve for. 

Are we stuck in stagflation? Not yet.

Are we moving closer to stagflation? Probably, but let’s not throw that word around like Mardi Gras beads just yet.

The bull-bear spread

It’s not OptimistiCallie with a little optimism mixed in, and I realize we’re sorely lacking the good news in this post. Sorry, I’m a realist, and I don’t want to sugarcoat things for you.

But I will end on a slightly more positive note, courtesy of the American Association of Individual Investors. And yep, it’s giving the zoo version of Mad Libs.

AAII has a weekly survey on how individual investors feel about the stock market. Market experts like to track the bull-bear spread in the survey results – or the difference between bearish (pessimistic) and bullish (optimistic) investors.

In the last two weeks, the gap between bulls and bears is the widest it’s been since the depths of recent market crashes.

People are very nervous about the future of the stock market.

I promise this is good news, y’all.

Fear is uncomfortable, but it’s a good dynamic on Wall Street. And ultimately, fear makes us better investors (as I wrote several months ago).

The most dangerous market mood is euphoria, when investors are caught off guard by a sudden swell of risks. I’d argue we were close to this a few months ago.

Not any more, clearly. The panic has set in, so Wall Street be done selling soon.

We’re navigating dark days, but dawn may be closer than you think.

Hang in there.

Thanks for reading!

Callie

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