What Leading Indicators Should Investors Track? A Call to Action for Investors

Last Edited by: LPL Research

Last Updated: March 14, 2024

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Jeffrey Roach:

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with a quick update on what's happening in the global markets and the call to action for investors. First, look at the reason behind the recent layoff announcements. What we see is that firms plan to lower headcount because of cost-cutting. That's a very different reason than shrinking demand. Firms are in a decent position to endure a downturn as they cut labor costs and streamline inventories. This chart explains a lot on why markets grind higher despite the uncertainty. Next, take a look at hours worked as a leading indicator for growth and the job market. In this chart, you'll notice hours worked is still below pre-covid levels as firms are probably doing some labor hoarding. Low hours worked could suggest that the labor market is about to cool enough for the Fed to commence the rate-cutting regime.

Jeffrey Roach:

Finally, easing labor costs should dampen services inflation this year. Compensation growth is less frothy now for those in the services-providing industries and this likely foreshadows lower inflation in the services sectors, something that will be encouraging for the Fed since services inflation has been the most troubling. Now, of course, it takes some time for firms to adjust retail prices after a change in compensation. But nonetheless, the decelerating cost of labor means investors should notice some easing in the stickier components of inflation. So here's the call to action. The next move for the Fed will most likely be a cut in rates. The real debate is the chronology of these cuts. Now, at this time, LPL Research recommends staying invested, maintaining a neutral tactical stance on equities. We expect some volatility in the near term, but equity markets could experience a positive catalyst as weaker labor costs allow the Fed to launch its next move. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.

 

Dr. Jeffrey Roach, LPL’s Chief Economist, highlights recent layoff announcements, the decline in hours worked, and the future trajectory in the services sector.

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