The First Week of September: A Tech Slump and Market Shock

Just when I thought the worst of September’s notorious market volatility was behind us, this first week has been a real eye-opener. After days of steady losses, the S&P 500 (SPY) and Nasdaq 100 (QQQ) took sharp downturns. The SPY dropped 3.6%，and QQQ plunged about 7%. This was all triggered by disappointing labor market data, including the ADP employment report and nonfarm payrolls, which came in below expectations.

Betting on the Wrong Side: FNGU's 12% Drop
So here I was, pre-market, thinking, "Hey, maybe this isn’t so bad." After all, the unemployment rate had ticked down from 4.3% in July to 4.2%, which looked like a positive sign. My reasoning was simple: after a rough start to September and a traditionally bad month for stocks, I figured the market had already priced in a lot of the bad news. Plus, the slight drop in the unemployment rate didn’t seem like a red flag—so I decided to go long on FNGU, the 3x leveraged ETN that tracks major tech giants.

But here's where I went wrong: I only focused on the 4.2% unemployment rate, and didn’t notice that May and June’s job numbers had been revised downward significantly. This key detail slipped past me. Once the market digested this news, FNGU fell 12% in a single day. Ouch.

Miscalculating the Sahm Rule
Here’s where I misstepped again. My assumption was that the unemployment data was signaling stability and that the Sahm Rule, which measures recession signals based on unemployment data, would fall from 0.53% to 0.50%. This drop would have reassured the market, right? Not quite. Instead, the Sahm Rule jumped to 0.57%, a level I didn’t expect unless unemployment hit 4.4%. This discrepancy threw me off, as I hadn’t anticipated that the underlying revisions to May and June job numbers would be so severe.

May 2024 saw a 0.92% decrease, while June 2024 had a far more drastic 13.11% reduction in nonfarm payroll data.

Historic Job Revisions: Data You Can’t Ignore
The most shocking part is not just the May and June revisions. From April 2023 to April 2024, the nonfarm payrolls were revised downward by a staggering 30%, marking one of the largest historical downward corrections ever recorded. Revising job data by 5-10% is one thing, but when it reaches 30%, it starts to feel like the initial reports were dangerously misleading.

Misreading the Fed and Market Sentiment
Adding insult to injury, I didn’t factor in the impact of the downward revisions on market psychology. I had expected the Fed to ease up, maybe cut rates by 25 basis points in September, maintaining the narrative of a soft landing. But the revised data fueled fears of a harder landing, pushing stocks down further. And despite the 4.2% unemployment rate, the market was more focused on the revisions, which hinted at a softer economy.

A Silver Lining: TMF Saved the Day
Fortunately, my position in TMF, the 3x leveraged U.S. Treasury ETF, soared as investors flocked to safer assets. Treasuries surged, which offset the hit from my FNGU position. So while I lost 12% on the tech side, TMF gains balanced out the losses. But still, this was a lesson in market timing—don’t jump the gun, even when things look "not so bad."

Trump, Elon Musk, and the Election: A Powerful Combination?
As the 2024 U.S. presidential election approaches, Donald Trump is preparing to implement sweeping changes to U.S. trade and tax policies should he win. Backed by Elon Musk, who would potentially lead a commission to streamline government operations, Trump’s proposals could attract a broad base of voters. Musk’s reputation for innovation and his large fanbase might very well boost Trump’s chances of victory, as voters see Musk's involvement as a way to modernize the government and drive economic efficiency.

However, Trump’s economic proposals come with significant risks. One of his most aggressive moves would be to impose universal tariffs of 10% to 20% on all imported goods and a 60% tariff on Chinese imports. While this aims to reduce U.S. reliance on China and promote domestic manufacturing, it would also significantly raise consumer prices in the U.S. This would make everyday goods more expensive for Americans, leading to a rapid surge in domestic inflation.

Trump’s plan could initially boost the market through increased domestic production, but the inflationary pressures caused by the higher tariffs would likely force the Federal Reserve to intervene and raise interest rates again. This cyclical pattern—recession, rate cuts to stimulate the economy, and then rapid inflation forcing another rate hike—would make it difficult for long-term investors, especially in U.S. Treasuries ETF like TLT and TMF. If Trump’s policies were to take effect, inflation would likely surge quickly after a rate cut, forcing the Fed into a tough position.

Market Collapse and My Key Observation
Now, onto my key observation: I believe that the timing of a market collapse will coincide with the Federal Reserve’s decision to cut rates by 50 basis points—a double rate cut. This is when the market will start to price in the full impact of a hard landing. If the Fed decides to cut 50 basis points in November or December, it’s likely we’ll see a significant downturn immediately afterward. The markets could interpret such an aggressive cut as a sign that the economy is in deeper trouble than expected, leading to a sell-off.

The Recession Dilemma
Regardless of who wins, the likelihood of a recession in 2024 or early 2025 is becoming more apparent. Even if Trump is elected and implements his policies, the Fed will likely have to cut rates to address a weakening economy. This means that while his policies might temporarily boost business sentiment, they could also lead to increased inflation down the line, creating an unpredictable environment for long-term bond investors. The recessionary pressures could force rate cuts in the short term, but once inflation kicks in, long-term rates might rise again.

If the stock market collapses before the election, it would severely damage Kamala Harris’s chances of winning. A pre-election market crash would reflect poorly on the current administration's handling of the economy, likely driving voters toward Trump in search of stability. If this scenario plays out, Harris would be in a weak position, and Trump’s election chances would increase dramatically.

Warren Buffett’s Hidden Message: Betting on a Hard Landing
One of the most telling signs of a potential hard landing is Warren Buffett's continuous selling of financial stocks, especially Bank of America. He’s been selling every day this month, which raises red flags. Buffett isn't just betting on a hard landing out of nowhere—he's preparing for it because, historically, financial stocks tend to drop sharply in recessions. If we were heading toward a soft landing, financial stocks would likely rise, given the improved economic stability.

This selling spree signals that Buffett sees more severe risks on the horizon. He’s positioning himself away from the financial sector, which would typically perform well in a soft landing, and instead is preparing for a deeper economic downturn. Buffett's actions should serve as a wake-up call for investors: the recession risk is real, and it's not just market noise.

What’s Next?
Looking ahead, I still believe we’ll see a 25 basis point cut in September. For November, it's a 50-50 scenario—the Fed could opt for either a 25 basis point cut or a more aggressive 50 basis point cut, depending on the election outcome and market conditions. By December, I see a higher probability of a 50 basis point cut, and that’s when the market could see a significant downturn, as investors price in the risk of a hard landing.

The real wildcard here? Warren Buffett’s consistent selling of financial stocks like Bank of America. When the Oracle of Omaha starts clearing out his banking positions, it’s a clear sign that he’s betting on a hard landing. If Buffett doesn’t trust the banks to weather the storm, why should we?

Final Thoughts
This week was a wake-up call. I thought I was buying the dip, but it turns out I was buying into a market correction. But that’s okay—because with treasuries performing well, I’m hedged for what’s to come. Still, it’s a good reminder: stay cautious, stay nimble, and don’t get too comfortable.

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