Financial Advisors May See Glimmers of Hope in Last Jobs Report

Financial Advisors May See Glimmers of Hope in Last Jobs Report

Is a weakening jobs market good news for stocks and equity ETFs?

Reviewed by: Ron Day
Edited by: Ron Day

While Friday before the Labor Day weekend traditionally offers little in the way of fireworks, last week brought investors a few surprises.  

The monthly jobs report painted a picture that not only livens up the outlook for parts of the ETF market, it also puts advisors in a good-news-versus-bad-news situation regarding clients.  

The economy added 187,000 jobs, more than expected. Other indicators pointed in the wrong direction: wage growth, the ratio of job openings to unemployed persons and the unemployment rate. The unexpected rise in unemployment to 3.8% from 3.5% may signal the long-anticipated downturn in the labor market, a goal of Fed rate hikes.  

Veteran investment analyst Neely Tamminga summarized the situation in a tweet from the perspective of both the markets and the consumer. Fewer people are leaving their jobs, she said, as the labor market tightens. Some are adding part-time gigs because they need extra money, while others trying to reenter the workforce aren’t finding it as easy as those who did so earlier this year.  

This smells like the start of a weakening job market. And the markets might just favor that since it increases the potential that the eventual “landing” of the economy from its previously strong pace might not be so bad.  

Financial Advisors May See Fed Moves as Win for Stock ETFs 

“Recession” will continue being tossed around as the year proceeds. While Friday’s report tilts more in that direction, investors appear to believe that if the economic data keeps the Fed from boosting rates, and rate reductions appear on the horizon, the stock market wins big. 

This won’t be settled quickly. Still, August has brought a string of “softly weaking” economic data that are giving stock market bulls hopes. That could help ETFs that invest in sectors that are more about stability than breakneck growth, such as consumer staples and other dividend-paying market segments. 

Remember that the stock market’s concern is still the bond market, and a shortened trading session Friday for that market did bring a sharp rebound in the 10-year US Treasury yield, from 4.08% to 4.18%, much closer to the pivotal 4.30% mark that many investors are watching as a line in the sand.  

A renewed and vigorous move above that might signal the market thinks the Fed will do as Chairman Jerome Powell implied at his Jackson Hole speech recently: that the central bank will stay vigilant against inflation, even in the face of the first trickle of evidence that their policies are working. 

For investment advisors, the possibility of a difficult labor market in the months and years ahead creates multiple challenges. Certainly, there’s the ever-present responsibility of overseeing client investment allocations, at a time of severe crosswinds in the stock and bond markets.  

But the new task could involve counseling clients who lose their jobs, are worried about getting laid off, or otherwise are put in career situations that require them to drill down deeper into the goals of their financial plan. This is what makes the advisor’s job tougher in recessions, but so rewarding, since their fiduciary role to clients becomes more obvious to those clients.  

Here comes September. Buckle up. 

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.