Daily Commentary

MarketMinder’s View: We typically don’t focus on individual outfits’ economic reports too often, but outplacement firm Challenger, Gray & Christmas Inc’s latest jobs report is getting a lot of attention today because of the lack of Bureau of Labor Statistics’ data. (Also, this article mentions some specific firms, and MarketMinder doesn’t make individual security recommendations—they are incidental to a broader theme we wish to highlight.) The numbers: “Companies announced 153,074 job cuts last month, almost triple the number during the same month last year and driven by the technology and warehousing sectors. It’s the most for any October since 2003, when the advent of cellphones was similarly disruptive, said Andy Challenger, the company’s chief revenue officer. … Year-to-date job cuts have exceeded 1 million, the most since the pandemic. In the same period, US-based employers have announced the fewest hiring plans since 2011. Seasonal hiring plans through October are the lowest since Challenger started tracking them in 2012.”  Yes, “most October layoffs since 2003” sounds dramatic in a vacuum, but it also rather cherry-picked. US companies cut more jobs in February and March this year (per FactSet). Consider, too: The US economic expansion that started in 2001 didn’t end until December 2007—so a weak 2003 October didn’t derail the US economy. That said, this report provides another look at the jobs market, and while we stress to investors not to overread into any one monthly report, the numbers here debunk the claim that the world is “flying blind” when it comes to the US jobs market.

MarketMinder’s View: The titular “jobless boom” is a sibling of the “jobless recovery,” but the underlying premise is the same: the seeming disconnect between what broad economic and/or market data and employment metrics are saying. In this case, soaring company earnings and rising layoffs have many experts scratching their heads since, “Typically, layoffs accelerate when companies are struggling with declining profitability and need to pare costs.” The article runs through some potential culprits, from AI reducing worker demand and increasing productivity to employers’ paring back on pandemic-related excesses. There is likely some truth to those claims at a company level, but we caution investors against reading too much into individual examples. First, remember rising profits aren’t incompatible with higher layoffs—jobs are an expense, and while layoffs tend to be a last resort for many businesses, they will do so to maintain profitability (which is key to survival) or because they are shifting emphasis within the company, a story common in Tech layoffs over the past year. Second, and more critically, jobs are late-lagging economic indicators, so it shouldn’t surprise they don’t track with markets (which are forward-looking). Layoffs or hirings reflect past business decisions while stocks focus on the economic and political factors influencing profitability over the next 3 – 30 months. Sure, there will be times when jobs and markets are moving in the same direction (e.g., most of the 2009 – 2020 US economic expansion and bull market), but the occasional divergence doesn’t mean something is off—jobs are likely just trailing what markets have already moved on from.  

MarketMinder’s View: Not too long ago, many considered Southern Europe (notably, Italy and Greece) the problem child of the Continent, dependent on the relative stability (politically and economically) of the “core” (e.g., Germany and France). How the tables have turned today, as more experts are acknowledging the Italian “success story.” See what the markets are saying: “In 2022, the spread on 10-year government bonds between Italy and its neighbour France was 1.8 percentage points. In 2018, it was even higher at 2.9 percentage points. But recently, the 10-year Italian yields have fallen below French ones. This is not just about a shift in views over the improving fiscal position of Italy—it is a political one.” The article then points out some ways the Italian government (which many feared would enact radical change) has acted like a typical center-right regime—pushing for economic reform and cutting bureaucratic red tape. Now, we aren’t saying Italy’s recent change in fortunes is due solely to the government (and as a reminder, MarketMinder is nonpartisan and doesn’t prefer any politician or political party over another). Rather, Italy’s rebound highlights a broader lesson for investors: Politics can and do grab attention in the short term, but global cyclical forces tend to matter more for economies—and Italy’s fundamentals weren’t as poor as feared in the late 2010s, just as France and Germany’s aren’t today. That is worth keeping in mind as headlines bang on about France’s recent political instability and Germany’s “sick man” economy.