Employment Will Continue to Grow Pushing Market Higher…

“Davidson” submits:

There are a number of economic indicators for gauging the overall employment trend one can monitor. Of these the JOLTS series-Job Openings: Total Nonfarm(monthly) from the Bureau of Labor Statistics, the ASA Staffing Index(weekly) and the Gallup Job Creation Index(weekly) are among those which monitor the current trend but provide up to 18mos of forecasting the trend of the Household, Establishment and ADP reports. The most recent charts of each are shown in order below. All three indicate levels similar to last seen in 2007 when employment was robust. Importantly, the Job Openings: Total Nonfarm and the Gallup Job Creation Index are showing sharp increases in hiring activity in recent months. The US economy is showing every sign of moving into a faster pace in the coming 12mos.

 

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The US economy is showing every sign of moving into a faster pace in the coming 12mos.

If we have heard anything about these trends, we have heard either that they were not good enough or they were poorer, low wage jobs. In the opinion of many, these job increases not only counted less, but they even decried that these trends indicated imminent weakness in the US economy or even worse collapse. Employment data trending as we see here can only lead to one interpretation historically.  This data indicates that the economy is fairly strong and about to become stronger. Acceleration in employment can only be interpreted as an acceleration in economic activity!

Acceleration in employment can only be interpreted as an acceleration in economic activity!

The bottom line is simple. Higher employment leads to higher corporate earnings! Higher corporate earnings lead to higher equity markets! As investors, we should expect higher equity prices in the months ahead as those who treat the current information as pessimistic  are forced t become more optimistic as the economy incessantly marches higher. This is the historical pattern.

Higher employment leads to higher corporate earnings! Higher corporate earnings lead to higher equity markets!

For investors to benefit from the full impact of this cycle, they must hold as much equity exposure as they are comfortable. Fixed income, i.e., bonds, will suffer as market psychology turns more positive and investors sell fixed income to buy equity. Again, this is the historical pattern. We should not expect anything grossly different. Even though economic history never repeats exactly, each economic cycle has its own newer, faster, cheaper technology. Overall investor psychology does repeat even if specific patterns do not. This is the basis for experienced investors saying, ‘The market never repeats, it rhymes!’

The fact that we are back to 2007 employment trend highs does not mean that a top is near. We are back at 2007 employment trend highs without housing or commercial construction. These very significant sectors of our economy are only slowly improving at the moment. But once they find their footing, there has always been significant additional economic activity. Higher rates will stimulate bank lending. (For an explanation of this give me a call.)

Summary:

Employment is surging. The US economy is accelerating. Corporate earnings follow. Investors to sell fixed income to buy equities ($SPY) ($INX). Stocks likely to rise-bond prices likely to fall in the next 24mos.

 

 




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