3 Things You Need to Know This Week | Global PMIs, US Jobs, Seasonality Fears

Transcript

Hello and welcome to Three Things You Need to Know this Week.

This regular series helps you cut through the financial headlines and focus on what really matters for markets. For more market insights, subscribe to our YouTube channel or visit FisherInvestments.com. And with that, here are the three things you need to know this week.

First up, global PMIs.

This week, financial data provider S&P Global will publish its final purchasing managers' indexes for August, also known as PMIs, for the US, UK, eurozone and Japan. These surveys of private companies help measure business activity. Readings above 50 generally signal growth, while readings below 50 generally suggest contraction. The latest readings are encouraging. During the spring, the uncertainty of the Iran war weighed on PMIs, with a general downward trend and the UK and eurozone falling into contraction. But the summer has seen an acceleration in business activity across the major developed economies. The US, UK, eurozone and Japan all showed strong readings in July and in initial August figures. That improvement is worth watching because it shows how quickly economic momentum can shift. In the spring, headlines focused heavily on geopolitical tensions, elevated energy prices and supply chain disruptions. Some worried the stock market was rising only because it was ignoring these major risks. The reality is that stocks look beyond short-term noise to the future that is often brighter than many fathom. And another thing stocks know: Businesses are resilient. It's also important to remember that PMI readings don't tell the whole story. PMIs measure the share of businesses reporting growth, but not the magnitude of that growth. So, a strong headline number tells you growth is broad, but not necessarily how quickly the economy is expanding. For stocks, what matters most is that gap between reality and expectations. Expectations still reflect many of the concerns that weighed on activity earlier this year. We believe that leaves ample room for positive surprise. Whatever August's final figures show, remember that monthly economic data can vary in an expansion. It's normal to see pockets of weakness along the way. Headlines may keep returning to geopolitical tensions, oil prices and supply chain disruptions. We see those concerns as classic bricks in the wall of worry that stocks often climb. For markets to keep rising, reality doesn't need to be perfect. It just needs to be a little bit better than investors expect.

Next up, US jobs data.

This week, we get another batch of US jobs data with most attention likely to fall on Friday's nonfarm payrolls and unemployment report. The US economy unexpectedly shed 23,000 jobs in July after four months of consecutive expansion. Yet the unemployment rate edged down to 4.1%. At first, that may seem counterintuitive, but it comes down to how these numbers work. Some people left the labor force, whether through retirement or other life changes. You can see that in the labor force participation rate, which slipped to 61.4%. The unemployment rate counts only the people who are out of work and actively looking for a job. It doesn't include people who have retired or who otherwise left the workforce. Financial media have spent much of the year warning about a weakening labor market. They've pointed to geopolitical uncertainty, AI-related layoffs and the challenges facing recent graduates. Lately, though, the conversation has started to shift. But, as Ken Fisher recently wrote about in the New York Post, AI may just be a convenient scapegoat for companies that have overhired. Ultimately, as we've said for a long time, "Yes, technology can eliminate some jobs, but it also creates new ones, often in ways investors and analysts can't predict ahead of time." The bigger point is jobs data are backward-looking. They tell us where the economy has been, but not where markets are going next. Stocks, on the other hand, look ahead. They move on expectations for economic and earnings growth over the next 3 to 30 months.

Finally, September seasonality fears.

You've probably heard that September has historically been the worst month for stock market performance. It's one of those market sayings repeated every year, and it can make even calm investors feel a little uneasy. September does have the weakest historical average monthly return, but averages alone don't make a reliable forecast. A handful of unusually bad years have pulled the average sharply lower, and the result can change depending on the period you examine. As we've mentioned in our latest MarketMinder article, seasonality doesn't drive markets and September's weak average largely reflects a handful of major outliers. It also helps to look at when September's worst declines happened. Many came during bear markets already underway, including 1931, 1974 and 2022. Those downturns had fundamental causes that had nothing to do with the calendar. September did not create them. The key reminder is that seasonality isn't a reliable guide. Take another popular saying: Sell in May. It suggests avoiding the market during the supposedly weak summer months and then returning around Halloween. Over time, rules like that can pull you away from your long-term goals. That's the real risk of seasonal myths. Maybe this September will be positive. Maybe it won't. Either way, we expect this bull market to continue through year end. We believe trying to time the market or letting seasonal myths distract you from a broader outlook is dangerous. And our outlook is based on a fundamental forward-looking analysis.

And that's it for this episode of Three Things You Need to Know this Week.

For more of our market views, check out This Week in Review, released every Friday, or visit FisherInvestments.com. Thanks for watching and don't forget to hit Like and Subscribe.