Markets Are “On Fire” Since September Jobs Report. Will They Continue?

On September 6 the jobs report came in weak at 142,000 new jobs. This report was well below expectations, unemployment rose from 4.1% to 4.2% and markets plummeted on the news. Economists proclaimed the beginning of the end with major stock indices falling 2% to 3%. The Vix index, indicating volatility and market nervousness, rose sharply. The outlook among many was bleak and, irrespective of Fed interest cuts on the horizon, many economic “experts” began voicing concerns of a recession. Those comments were overblown. The US economy is nowhere near a recession. At least now.

By contrast, on October 4 a new jobs report came out that was red “hot”. Jobs increased by 254,000, soundly beating expectations, and major market indices soared by 1% to 2%. Since the September 6 dip, major indices have been soaring. The S&P 500 has increased 6.45%, while others such as the QQQ (+8.76%) and the Russell 1000 Growth (+8.43%) have done much better. Leading the pack has been the Entrepreneur 30 Total Return Index (ER30TR) which came in at 12.99%. (Note: Past performance is no guarantee or guide to future performance).

This performance has continued the strong year-to-date (YTD) results. The table below shows that, thus far, this has been a banner year. YTD the S&P 500 is +21.86%, with the Russell 1000 Growth (IWF) +24.10% and the Nasdaq QQQ +19.51%. The Entrepreneur 30 Total Return Index (ER30TR) is continuing its strong year from 2023 (57.41%) with a current YTD performance in 2024 of 38% (Note: past performance is no guide to future performance).

What should investors take from these results? In retrospect, the strong negative response from the September, 6, 2024 negative jobs report was an overreaction on the downside. The economic situation for the US was not nearly as bleak as market pundits expressed. To be fair, neither is the strong jobs report on September 6, 2024 as good as many deem it to be. Many of the 245,000 jobs created in the month of September are from government, social services and healthcare. More importantly, the US workforce is old. Very, very old. 75m baby boomers will be at or past retirement age by the year 2030. As many as 25 to 30m working baby boomers, 1/3 of whom now work past retirement age, (well up from 20 years ago) will be retiring within the next 5-10 years. Further, online estimates suggest 300,000 jobs are being outsourced overseas each year. My data from a Capital IQ search of top public IT firms, suggests it is much, much higher. The US is losing high wage IT jobs to places based primarily in India and Eastern Europe. We are losing low wage bookkeeping and call center jobs to places based primarily in Philippines and Vietnam. Many low wage jobs in the US are also being picked up by illegal immigrants working for cash dollars.

Are these labor issues major concerns for the US economy in the next 5-10 years? Absolutely. The US labor force currently only produces approximately 1m new jobs per year. Losing 5 million jobs over the next year, under normal circumstances would be devastating, let alone, 20m to 30m jobs. The US labor force is currently creating non productive jobs in government and social services. As a country, we may soon find ourselves with less than 1/2 of our adults in the labor market. This means fewer Americans will need to perform the heavy lifting to support the rest of us.

Fortunately, purely by coincidence, AI may save the day. The productive capabilities of AI means that we as a population will need fewer workers to provide the same level of productivity as before. Smart robots will enter the workplace and provide more efficient delivery mechanisms than humans. In an environment with a growing population this displacement of humans would be a problem. The US has the opposite issue. The productive capabilities of AI and robotics will be a game changer for many industries, particularly in IT, Healthcare, Communication Services and Consumer Discretionary. We will also see innovative nuclear energy solutions to power our data centers. These innovative, disruptive, entrepreneurial solutions have the ability to arrive just as our aging population needs it most.

Will AI and robotics benefit all companies? Absolutely not. Just as companies such as Nvidia, Applovin and Arista Networks (among others) have begun reaping benefits associated with AI, their competitors have suffered. A declining labor force does not necessarily imply a dip in the stock market.

We believe that the next few years will continue to widen the gap between winners and losers. The stakes have never been higher. Brick and mortar, bureaucratic stores such as Walmart, Target and Home Depot and Telecommunication companies such as AT&T continue to lose hundreds of thousands of jobs, other entrepreneurial companies will grow their ventures and reap strong rewards. Major change to our labor force is guaranteed within the next 5-10 years. But all is not lost. Far from it. We simply need visionaries at the top to help us lead the way.

Past performance is no guarantee of future results. Please refer to the below disclosures:

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