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Odd Reaction to Goldilocks Jobs Report

In the latest LPL Market Signals podcast, Chief Equity Strategist Jeffrey Buchbinder and Director of Research and Chief Investment Officer Marc Zabicki discuss what the August jobs report means for the Federal Reserve (Fed) as wells as the market’s reaction to the report. They also highlight some “risers” and “fallers” where LPL Research’s tactical asset allocation views are changing.

Jobs Report Looked Like What the Fed Wanted

A number of elements within the August jobs report suggested some progress toward the Fed’s goals, including slowing job growth, downward revisions to prior months’ job numbers, a slightly higher unemployment rate, normalizing wage gains, and a steeper yield curve. Rising labor force participation rates are also encouraging, though only the 45-54 age cohort has returned to pre-pandemic levels.

What Does the Jobs Report Mean for the Stock Market?

The strategists do not attribute the Friday afternoon selloff before the holiday week to the details of the jobs report. Low volume likely exacerbated the swings ahead of the holiday weekend. Meanwhile, the S&P 500 Index had enough negative momentum that a test of the 3,900 level seemed unavoidable. The pattern is quite similar to October-November 2011 when the S&P 500 corrected 10% after a 17% rally before resuming the bull market run through the end of the decade.

Risers and Fallers

The strategists highlight developed international and emerging markets as fallers, investments that look relatively less attractive and that the strategists believe should be underweighted in portfolios. The energy crisis in Europe is the biggest challenge for developed international, but a strong U.S. dollar and weakening momentum for the asset class don’t help. Commodity weakness and deteriorating earnings may weigh on emerging markets in addition to slow growth in China.

Lastly, the strategists also note the industrials sector as a riser. Strong capital expenditures in the second quarter from S&P 500 companies and resilient relative performance despite recession fears support the LPL Research team’s increasingly positive view. Consumer staples is an area the strategists would consider moving away from so as to not be caught too defensive ahead of a potential fourth quarter rally. Among defensives sectors, the team prefers healthcare, real estate, and utilities. 

Tune In Now

Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the U.S. and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Podcasts, or Spotify and find us on the LPL Research YouTube channel.

 

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IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

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High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

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The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.

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This Research material was prepared by LPL Financial, LLC. 

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