The first is the jobs market1<\/sup>, which I believe could be substantially stronger than many currently believe. In the Federal Reserve\u2019s recently published Beige Book \u2013 which is based on surveys from major cities \u2013 I noticed a common theme: employers across the country are reporting shortages of workers<\/em>, and many are desperate to hire.<\/p>\n The areas of the economy with the most acute shortages are part of the \u2018reopening trade\u2019, i.e., companies and industries that stand to benefit most from loosened and eventually removed restrictions. Think restaurant employees, drivers, child care workers, service industry jobs, and even jobs in information technology.<\/p>\n The labor force is estimated to be five million people smaller than it was before the pandemic, which gives the impression that the labor market is badly bruised. But it is also true that many people dropped out of the labor force for temporary reasons \u2013 people fearful of catching and spreading the virus, and\/or those who are content living on expanded unemployment benefits. Those reasons may fade soon, and I think most people who want a job today can find one.<\/p>\n Another economic fundamental pointing2<\/sup> to falling risks can be found in the corporate bond markets. The spread between speculative-grade, high yield corporate bonds and the 10-year U.S. Treasury bond has fallen to multi-year lows, as seen in the chart below:<\/p>\n Source: Federal Reserve Bank of St. Louis3<\/sup><\/em><\/strong><\/p>\n Indeed, the yields on low-rated corporate bonds sunk to a record low of 3.89% in February, indicating that companies can borrow cheaply in the current environment. Investors are the ones doing the lending, which tells us the market is not demanding much compensation for the level of perceived risk. \u00a0Many would say this is a sign that investors are starved for yield, which I believe is true in part. But the other side of the story is investors may just be very confident in their outlook for the economy and see further signs of strength and improvement.<\/p>\n A final indicator4<\/sup> underscoring falling economic risks is new business formation. The pandemic devastated many businesses, no doubt. But the tides are turning \u2013 applications for new businesses hit nearly 1.4 million in Q1 2021, which marks the second-highest quarterly total in over 15 years. Applications for businesses that could employ multiple workers also approached their highest quarterly tally, indicating that entrepreneurs have been emboldened by what they see as an opportunity for new growth. In my view, it\u2019s a clear sign the U.S. economy is pushing ahead, with innovators and new growth opportunities forming in the wake of a major recession.<\/p>\n Bottom Line for Investors<\/strong><\/p>\n I\u2019ve made the point that economic risks are falling. But what about market risks being on the rise? In my view, it depends on where you\u2019re invested. I\u2019m seeing a lot of froth in particular asset classes and some individual stocks, but I think an investor\u2019s risk is tied to his\/her portfolio exposure. Many investors are abandoning long-term, diversified approaches in favor of chasing \u2018hot\u2019 asset classes or stocks. That\u2019s bad news, in my view.<\/p>\n At Zacks Investment Management, in addition to the qualitative screening of the fundamental characteristics of companies we invest in, we analyze their correlation with our existing portfolio and with the overall market. Doing so allows us to ascertain to what degree our portfolios will be affected by large shifts in the market, such as market corrections. In other words, we constantly prepare for episodes of market volatility, which in my view, may arrive sooner than later \u2013 even as the economy improves.<\/p>\n","protected":false},"excerpt":{"rendered":" There is an interesting dynamic happening in the current environment, in my view: economic risks are falling, while market risks […]<\/p>\n","protected":false},"author":3,"featured_media":7908,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8075","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/8075","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=8075"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/8075\/revisions"}],"predecessor-version":[{"id":8654,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/8075\/revisions\/8654"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=8075"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=8075"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=8075"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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