Employment Numbers
Okay, we’re beginning to get convinced.
We’ve been talking about the economy and our view that a slowdown would be occurring as interest rates increases still trickle through the economy. With the recent job numbers reported as stronger than expected, we think it’s time to go from predicting rates will go down as a probability and now move that towards a possibility.
The labor report I’m referring to this week was quite surprising. Resilient economy!
This chart highlights the path of job openings.
So, what does this mean for portfolio strategy if job numbers continue to be strong and if rates do not fall as much as we expected?
First, it does add increasing uncertainty to the overall economic picture as the data now is very conflicting. Higher interest rates could very well mean a deeper future, a slowdown could occur if it turns out the economy is weakening (and if the Fed continues to keep rates at a high level).
Additionally, equity and bond investor sentiment has been impacted by a belief that interest rates will be falling. This suggests that some of the helium inserted into this market may begin to dissipate and suggest it might be wise to lower expectations for the second half of the year.
Interestingly, even though interest rates might be rising because inflation is not at runaway levels as it was a year ago, a stronger labor market suggest the US economy is quite healthy. A quote from that recent report highlighted above stated:
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Begin quote
“The strong job market puts consumers in a position to maintain solid spending levels, keeping the economy growing in the face of persistent inflation and elevated interest rates.”
End quote
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So, what’s the bottom line in terms of portfolio positioning? We focus on high cash flow companies, we somewhat lean towards dividend assets, we are not abandoning technology, we continue to own lower duration fixed income relative than the overall bond market and are neutral weight equities.
