Recent Employment Data Could Mean Some Respite From Rising Interest Rates For Investors

TL;DR

• We’ve seen a ton of new employment data out this week, including the ADP private payrolls report, the broader unemployment report and new jobless claims numbers
• It is showing a trend of a weakening job market, which is good news for companies and investors who are hoping for some respite from rising interest rates
• Layoffs continue to be part of this trend, but they’ve spread beyond the high growth tech industry and are now hitting even ‘recession proof’ companies like McDonalds and Walmart
• Top weekly and monthly trades

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Major events that could affect your portfolio

We’ve had a couple of different jobs reports out this week, with both coming in at or below expectations. It bodes well for investors, as a cooling job market will lean the Fed towards a pause in their rate hike policy at the next meeting in May.

The ADP private payrolls report for March showed 145,000 new jobs added, against a 210,000 projection. As ADP chief economist Nela Richardson said, “Our March payroll data is one of several signals that the economy is slowing. Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.”

Jobless claims data came out on Thursday, and these figures are following the same trend. A total of 238,000 new unemployment benefit claims were made in March, above the 200,000 that had been forecast.

Lastly, the Unemployment Report was out today, which includes government jobs in addition to the private figures from the ADP report. This showed 236,000 new jobs being added, right in line with the projection of 238,000 and bringing the unemployment rate down slightly to 3.5%.

So we’re not seeing major pullbacks in the job market, but we are seeing a slight weakening. Right now, that’s good news, because the Fed is aiming to do exactly that — slow the job market and economy to bring down inflation, without crashing us into a recession.

Depending on CPI results due out next week, this could be pointing to a pause in rate hikes at the Fed’s next meeting in May.

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Layoffs in the tech sector are nothing new. It’s been months of announcements from just about every publicly traded company, and most private companies as well. These started back in 2022 with smaller, high growth companies being the first to trim down the workforce, and has now spread to even the biggest names like Amazon and Microsoft.

And now we’re even seeing companies that are traditionally seen as recession resistant value stocks laying off workers too. This week it’s been McDonalds and Walmart, with the golden arches temporarily closing their corporate offices in order to inform workers remotely.

Walmart hasn’t sacked office staff in this round, instead laying off 2,000 warehouse workers.

For investors it’s a clear sign that the ‘Year of Efficiency’ as coined by Mark Zuckerberg is likely to spread across most of the market. And long term, that’s a good thing.

It’s called a business cycle for a reason. There are stages that the economy goes through, with each one laying the foundations for the next. Right now, the markets and the economy are not firing on all cylinders, and it’s actions like layoffs which set the stage for the recovery phase.

As businesses cut overheads and focus on efficiency, it allows them to maintain or grow profits even during lean times. When economic activity starts to recover, those more efficient businesses are able to generate more profits on higher margins, which provides fuel for additional growth.

It’s why, for investors, it’s worth keeping an optimistic view over the long term.

This week’s top theme from Q.ai

There’s no way to know for sure what the market has in store ahead of us over the next few months, but it’s likely that we haven’t seen an end to the volatility. Inflation remains high and the Fed is determined to get it back down, and now the financial sector is on shakier ground than it’s been in a long time.

In this kind of environment, hedge funds love to play the short card. That is, shorting stocks so that they can generate profits if the price falls. But the thing with this strategy is that sometimes that stock goes up instead of down, leaving the short sellers scrambling to buy stock to cover their positions and minimize their losses.

When this happens, it can create a flurry of activity and buying pressure which sends a stock soaring in the short term, regardless of the fundamentals of the company.

This is known as a short squeeze, and the most famous example in recent times was Gamestop back in early 2021.

Playing off a short squeeze can be a phenomenal strategy to generate big returns in a short space of time, so we’ve tasked our AI with finding these opportunities in our Short Squeeze Kit. Our AI analyzes historical and current financial data on thousands of securities, and rebalances every week based on which of those heavily-shorted stocks are most likely to break out.

They’re not all going to be as big as Gamestop, but even smaller runs can add up big over time.

Top trade ideas

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

Target Hospitality (TH) – The temporary accommodation and logistics company is one of our Top Buys for next week with an A rating in our Growth and Technicals factors. Revenue was up 72.3% in 2022.

Azenta (AZTA) – The semiconductor manufacturer is our Top Short for next week with our AI rating them an F in Quality Value. Earnings per share was -$0.34 in 2022.

Advantage Solutions (ADV) – The marketing agency is our Top Buy for next month with an A rating in Technicals, Growth and Quality Value. Revenue was up 12.4% in 2022.

C3.ai (AI) – The software company is our Top Short for next month with our AI rating them an F in Quality Value and Technicals. Earnings per share were -$2.42 in 2022.

Our AI’s Top ETF trades for the next month are to invest in crude oil and natural gas and to short small-cap growth stocks. Top Buys are the ProShares Ultra Bloomberg Crude Oil ETF and the United States Natural Gas Fund and the Top Short is the Vanguard Small-Cap Growth ETF.

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