Inflation Predictions: The Labor Market Remains Resilient

TL;DR

• The latest jobs report is out and the economy added 263,000 new non-farm payrolls in September

• Inflation continues to be a hot topic, with a very slight reduction predicted ahead of the official figures to be released next week

• Precious metals have been seen as an inflation hedge for thousands of years, and even today they can play a part in an investment portfolio

• Top weekly and monthly trades

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Major events that could affect your portfolio

The latest jobs report from the Bureau of Labor Statistics has just been released and it’s not too bad at all. Private non-farm payrolls were up by 263,000 for the month of September, which sees the unemployment rate drop from 3.8% last month down to 3.7% this month.

It means that the labor market remains remarkably tight and surprisingly resilient to all of the economic turmoil and negative headlines swirling around. There were some big numbers added in professional and business services (+46,000), manufacturing (+22,000) and construction (+19,000) while there were contractions in the financial sector (-8,000) and transportation and warehousing (-8,000).

There was a 10 cent rise in hourly wages which brought the average hourly rate to $32.46. As far as working hours goes, they remain unchanged with 34.5 the norm for the fourth month in a row. This brings wage growth to 5% over the past 12 months. In most years this would be considered pretty strong, but given that the inflation remains a stubbornly high 8.3% it’s unlikely to cover rising costs for most households.

These figures are so far not headed in the direction that the Fed expected, with their projections showing the average unemployment rate heading to 3.8% for 2022. Obviously there’s still plenty of time for us to get there, but with these figures following positive consumer confidence numbers last week there is some cause for cautious optimism.

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We hate to sound like a broken record, but inflation isn’t going anywhere. The figures for September are due to be released next week on October 13 and so far the predictions aren’t looking too rosy.

Most analysts are in agreement that the US is past peak inflation, at least partially because of the supply chain problems that have occurred as a result of the pandemic lockdowns. This is particularly true given how strongly Fed chairman Jerome Powell has stated their aim to bring the headline figure back down to the 2-3% target range.

With inflation running at 8.3% over the past 12 months, many will be eager to see how the numbers stack up for September. The Cleveland Fed operates what they call a ‘Nowcast’ which aims to predict what the inflation rate will be based on movements in certain data such as energy prices.

So far the Nowcast is showing inflation coming in at 0.3% for September, which would see the annual rate drop slightly to around 8.2%. It’s progress, but it’s not going to be enough to see the Fed make any changes to their planned sharp moves on interest rates.

Of course these are just projections and we won’t know the final figures until they’re announced next week. All we do know is that inflation isn’t likely to lose its status as a top story for some time yet.

This week’s top theme from Q.ai

With inflation continuing to dominate the news cycle and markets remaining volatile, it’s a challenging environment for investors to operate in.

One investment asset class that often comes to the fore during periods of high inflation are precious metals. Gold, silver and other metals have been used as an investment asset and an inflation hedge for thousands of years, and even today they’re used as a store of wealth.

There are many different ways to invest in precious metals, but holding the actual metal itself generally isn’t the way to go. It’s difficult to buy given that you need to find somewhere that physically sells gold bars or coins and even if you do manage to get your hands on the stuff you then need to keep it secure.

Proper storage in your home is expensive and insurance is either very difficult or impossible to arrange. You can pay to store it in a vault or storage facility, but that comes with its own hassles and costs.

To make this process easier, we’ve created the Precious Metals Kit. This offers diversified exposure to the four major metals, gold, silver, platinum and palladium. The portfolio gains exposure to these through the use of a range of different ETFs and we use AI to rebalance the portfolio each week to find the optimal risk adjusted return.

It provides investors with diversified exposure to precious metals at a time where safety is of paramount importance. So far this year the strategy has worked well, with the Precious Metals Kit returning 1.61% to the end of September. That’s a great result given the S&P 500 is down -24.77% over that time.

Top trade ideas

Here are some of the best ideas our AI systems are recommending for the next week and month.

Lululemon Athletica (LULU) – Athletic apparel brand Lululemon is one of our Top Buys for next week with an A rating in Quality Value and a B in Growth and Low Momentum Volatility. Earnings per share is up 3.51% over the past 12 months.

Nkarta (NKTX) – The biotech company is one of our Top Shorts for next week with our AI rating them a F in our Technical factor and D in Quality value and Low Momentum Volatility. The company has lost $98 million over the past 12 months.

Super Micro Computer (SMCI) – The diversified technology company is one of our Top Buys for next month with an A in our Low Momentum Volatility and Growth factors. Earnings per share have grown 25.81% over the past 12 months.

Agile Therapeutics (AGRX) – Another biotech company is one of our Top Shorts for next month with our AI rating them a D in Quality Value. Earnings per share is down -8.74% over the past 12 months.

Our AI’s Top ETF trade for the next month is to invest in robotics, biotech and the consumer discretionary sector and to short the short term bond market and the stock market as a whole. Top Buys are the ARK Autonomous Technology & Robotics ETF, SPDR S&P Biotech ETF and the Vanguard Consumer Discretionary ETF. Top Shorts are the Vanguard Total Stock Market ETF and the Vanguard Short-Term Bond ETF.

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