Right now, investors are struggling to make heads or tails of a topsy-turvy time for the stock market.
But here at Moneyball Economics, we’re already looking to the future — and a shocking new development in the data that’s pointing towards surprising interest rate hikes (not cuts) headed our way in the near future.
This turn of events could upend expectations and instantly transform the way many investors think about the market.
Hit today’s video below for the full story:
Video transcript:
I’m Andrew Zatlin. Welcome to Moneyball Economics.
Remember when I said we would be seeing some volatility and you should be playing the VIX? Ooh, wish I’d taken my own advice.
Was it only a week ago or so I said that?
Because the VIX is up almost 50% in a week.
And I think it’s going to keep going up because this week we’ve got a lot of key macroeconomic data points coming out and the markets are going to be whipsawing. The background to what’s happening this week is we are transitioning between two different economic cycles.
We had the COVID cycle where we overbought, overhired, and then had to unwind all of that. Now we’re transitioning to what I call the Trump cycle, where we’re going to be seeing the economy changing, it’s going to be running hot, and it’s that transitionary period where we’re sitting. And when you’re in a transitionary period, the data points in conflicting ways.
Some data points are going to say economic expansion.
Some are going to say, “Nope, things are really soft.” And that means nobody really has a clear handle on what’s going on and the markets get nervous. And we’re going to pass through this in the next couple of months, but right now the markets are nervous because they don’t feel like they’ve got a good handle on things.
I’m here to tell you that actually all the data signals that matter are pointing to economic expansion and even more interesting, the data that I’ve been catching right now is telling me, forget interest rate cuts next year. Not 2026, but 2027 is the year of rate hikes.
It’s far out in time, but we’re going to talk about that. So let’s start off with this week and all this economic data that’s coming down the pipeline that’s got the markets kind of on edge.
Yeah, ignoring what’s going on in Iran. So right now we started off the week with the ISM, Institute of Supply Management’s PMI assessment. Hardcore economists, we love this report. It’s a real direct line of sight to what manufacturing and service companies are prepping for.
How much inventory do they need to provide? What customer orders are coming in? Are they growing? Are they shrinking? What are they doing with employment? How are exports doing? How are imports doing? It’s a real cool survey.
Well, it started off by saying manufacturing is expanding. And this is key because they’re looking at recent events. They’re looking at what happened in February. The February data coming down the pipeline through the ISM’s PMI reports signaling expansion. Not massive expansion yet, but expansion.
We like that.
Then we’re going to get on Thursday, jobless claims data. It’s going to go up a little bit, but again, still within this really nice zone where jobless claims are friendly and signaling economic expansion.
So we’ve got signal saying economic expansion, but then we’re going to get the contradictory signals in the form of a retail number for January, and that’s coming out on Friday. So this is one that’s going to say, no, the economy isn’t growing. In fact, it’s shrinking because consumers aren’t spending. And that’s what happened in the December retail report, and that’s what’s happening in the January report. Nobody’s spending the economy’s contracting. We need interest rate cuts fast.
Well, first of all, this data’s flawed.
And so I think you need to look past the retail numbers. Why is it flawed?
Well, it started with December. If you look at the raw numbers, as I do, December retail ignored $3 billion of incremental sales for companies like Costco, Sam’s Club, and BJ Wholesale. They make up what’s called warehouse club spending, and it is 15%, 15% of that total retail number that gets published.
And yet in the raw data, the government said they didn’t grow year over year. Same amount of sales this last December is the year before. But at the same time, these companies reported that they generated $3 billion more in incremental sales for December last 2025 versus 2024.
$3 billion would’ve made the December retail number look just fine, doing great. People are spending money. So that’s why we got to be careful because actually the December number said it was weak, but it’s because they just, for whatever reason, didn’t do their work.
Fast forward to January, it’s going to be weak because we had the storm. Yeah, a lot of people panic bought in the run up to the storm, and so that’s going to push up retail, stockpiling of food and so forth. But pulling it right back down is the fact that nobody was going out and buying furniture or cars. Definitely not for that one weekend. That’s a key weekend.
But also Fern closed down tens of thousands of restaurants and shops for the entire weekend. Net-net, it’s going to pull retail down.
So you’re going to get two consecutive months where retail says, “Oh, we’re weak.” Markets aren’t going to be happy about that. They’re going to say, “Hey, forget this manufacturing stuff of incremental growth. I’m more focused on, is the consumer rolling over? Have we reached the point where we got to get interest rate cuts?”
Also on Friday, we get this soft retail data. We’re also going to get strong payroll data. Let’s talk about that. There’s a difference in strength. The headline number, strength is strength, but when you go drill down, you’ll find out that actually the details matter. Let’s talk about why I think this Friday’s payroll number matters and is going to signal important strength.
Now right off the bat, last month was a bogus number. Came out super strong. If you look at private payrolls, 170,000 jobs were created in the month of January. Holy crap, that’s a great number!
The market did not like it because it might have said we don’t need interest rate cuts. Labor market’s doing strong. In fact, that number was totally bogus. 170,000 jobs added in the month of January in the private sector, almost exclusively because of healthcare. Healthcare added almost 130 of those 170,000 jobs.
Folks, historically, I can go back 30 years. In the month of January, that has never happened. It doesn’t happen.
Why? Because offices closed, doctors go on vacation. People go on vacation. They don’t go to the dentist. They don’t do elective surgeries over the holidays. And so you trim your front staff. Nurses who were contractors was told, “Go stay home for a few weeks.” But not this year.
For the first time ever. All hospitals, clinics, and doctors’ offices stayed open, which means someone’s not really looking at the data correctly over on the government side, and that drove up the number. Don’t believe it. It’s a bogus number.
Focus instead on the non-healthcare part. God, that was weak…
Last month, only 40,000 jobs were created in the rest of the economy. Weak, weak, weak.
But you fast forward to what happened in the February report and what you will be seeing on Friday is strength, strength, strength. Ignore healthcare. I think actually healthcare is going to go negative or very barely positive because it kind of pulled it all the way into January.
But bottom line, I think we’re going to see really strong job growth. Not the 40,000 in January. We’re going to hit 80,000 or more in the non-healthcare sectors, meaning the core economy is growing payrolls. Not huge, not 200,000. We’re not there yet, but you’re going to see this growth.
How is the market going to digest all these data signals?
Well, I think the market’s going to say, look, whatever economic activity we’re seeing, it’s not up and to the right yet. It’s good. We like seeing it, but it’s not enough to say don’t cut interest rates.
Nevertheless, I think Friday’s going to be volatile. Looking out though, let me share with you something really compelling. Yeah, I know we’re preparing for 2026 and here I am. I’m about to talk 2027, but I want to make the case how my data is pointing to a massive rate hike in 2027.
And so whatever we talk about now, start to think 2027, what’s happening now is not long-term. It’s going to go for about six to eight months, and then the cycle’s going to really ramp up and things are going to change again.
What I’m talking about is this…
Companies operate with a strategic plan.
They go out and they survey and they make a decision that starting in January, they’re going to take a plan that defines how many people they’re going to hire, how much equipment they’re going to buy, and so on and so forth.
What they’re going to spend based on what they think their business revenues are going to look like. And so that means hiring is a proxy for what business activity expectations they have.
And it kicks off in February. It’s kind of a groundhog day, I call it, because yes, the plans are released in January-ish, but most people aren’t really ready to pull the trigger.
They start pulling the trigger and you start to see the results in February. You start to see that hiring kick in. You start to see equipment and subscriptions kicking in.
I’m here to tell you, I track hiring for almost 800 publicly traded companies. And then I look at the S&P 500 companies and I find it very interesting what’s going on there because these are the big hitters when you talk about hiring, right? And they also follow this strategic planning. They’re mature companies.
And so they follow this kind of plan. Because again, you’ve got to lead top down. You got to tell your VPs, your directors, your managers, so that everybody knows and everybody’s working together in lockstep.
Well, guess what? To cut to the chase, their February hiring is up and to the right. It’s surging. That tells me in a groundhog day kind of metaphor that they’ve come up and they see sunny skies ahead.
Even more importantly, they’re ramping up super fast because there’s a lot of economic activity that they’re going to have to meet.
They’re both creating and servicing a lot of business going forward. That’s their expectation. As a result, when I think about growth and when I think about contraction, I think in terms of what happens with inflation, right?
If you’ve got growth, inflation starts to kick in. There’s a little bit of a lag. You’ve got GDP. Well, GDP measures this economic activity. So I did a thought experiment. I took my hiring for the S&P 500 companies and I compared it to what’s going on with both inflation. I compared it to GDP.
And sure enough, there’s a pretty good correlation. It’s good, but there’s always these delays and hiccups and so on and so forth. It could be fine-tuned. GDP includes things like government spending, not just private sector and so on and so forth.
But if hiring is a leading indicator for the economy, and on top of that, the Federal Reserve is always late to the game when it comes to making rate cut decisions.
I said, let’s just cut to the chase. How strongly correlated is today’s hiring to tomorrow’s rate cuts or rate hikes? And guess what? It’s almost one to one with a one-year lag. What I mean is if I take S&P 500 company hiring and what they’re doing in the month of February, that groundhog day where they say, “This is what we expect to see the rest of the year.”
If I take what’s going on in that month, and I delay it by a year so that the impact takes a year to happen, and I take Fed rate cut decisions or rate hike decisions, what did we do in December at the year end versus what was the rate the year before? Did they cut? Is it flat? Did they go up? And I layer these two lines in there.
The beginning of the year for what’s going on with hiring plans in February, compare it to what happens at the end of the year when the Fed’s looking back almost 12 months and going, “Hey, look at the economy. Maybe we should raise rates, maybe we should cut them.”
So when I line that up, guess what? It’s telling me that the hiring in February is going to trigger rate hikes in 2027, and not just any rate hike, as much as 100 basis points.
That’s big, that’s impactful. And I think you need to start thinking along the lines of preparing for that as we prepare for growth this year.
Towards the end of the year, that growth is going to be so seismic that you’re going to stop hearing about rate cuts and you’re going to start hearing the chatter about rate hikes. Again, we play these inflection points because they do trigger changes in the bond and stock markets. But folks, right now, prepare for growth on growth on growth.
We are in it to win it. Zatlin out.
Andrew Zatlin
Editor, Moneyball Economics