Eduardo G. from Round Rock, TX asks: Hi Mitch, are you concerned about the weak job report that has sent the market into a tumble? There are a lot of reports that the economy is tipping, and that is why the market is in a nosedive. I would like to hear your perspective. Thank you.
Mitch’s Response:
Selling pressure across global equity markets has many investors concerned, so your question is timely.
Let me start with the jobs report you referenced, which is being held out as a talking point for why the economy is weakening. In July, the U.S. economy added 114,000 jobs, according to the Bureau of Labor Statistics. This figure was lower than expectations, and it also marked a pronounced step down from previous months’ job growth. Worth noting, too, was that May and June’s job count was revised lower by 29,000, and the unemployment rate jumped to 4.3%—its highest level in almost three years.1
On its face, this data paints the picture of a weakening economy via slower jobs growth, but there are some key elements missing.
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For one, the Labor Department also reported that average hourly earnings were up 3.6% in July from a year earlier, which is well above the latest inflation rate posted in June. In other words, ‘real’ wages are still rising for Americans, which bolsters overall spending power.
The uptick in the unemployment rate was also largely due to more people coming off the sidelines to look for jobs, versus people losing their jobs due to layoffs. The labor-force participation rate rose to 62.7% in July from 62.6% in June. I know that move feels insignificant, but without this increase, the unemployment rate would have stayed at 4.1%.
Other fundamentals we track for the U.S. economy, like consumer spending and services-based activity, remain on solid footing, in my view. Importantly, from an earnings perspective, what we’ve seen so far for Q2 has been quite good overall—as of July 31, the 285 S&P 500 companies that have reported showed earnings up +9.8% from the same period last year on +4.8% higher revenues, with 80.7% beating EPS estimates and 59.6% beating revenue estimates. We’re not seeing any major warning signs here.
I’m going to write more about heightened volatility and the market selloff in my Mitch on the Markets column this week, but I think the selling pressure has all the classic signs of a market correction—sharp, sudden, and not necessarily connected to a major fundamental issue. Two weeks ago, when the stock market was performing solidly, the narrative was that the economy was in strong fundamental shape with earnings and consumer spending holding up better-than-expected. But as soon as selling pressure arrives, the conversation turns abruptly to “cracks” and “warning signs” across the U.S. economy, with investors questioning everything. My advice is to stay patient and cool—market volatility is normal, and the U.S. economy remains in good overall shape, in my view.
Understanding these concerns, I’ve created a resource to help you navigate these uncertain times. I recommend downloading our free guide, ‘Helping You Manage Market Volatility3’, which answers key questions such as:
- Market downturns can and will occur, but what should you do?
- How can diversification help you manage volatility without compromising your returns?
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- Can volatility be an opportunity?
If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
Disclosure
1 Wall Street Journal. August 2, 2024. https://www.wsj.com/economy/jobs/jobs-report-july-unemployment-economy-8b7e6db7?mod=article_inline
2 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the guide “Helping You Manage Market Volatility” for any reason and at ZIM’s discretion.
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