Here’s why the jobs report is good news

Plus learn what the Blue Angels have to do with the markets EDITOR’S NOTE: I’m sharing some market analysis from the team over at Avalon today. From time to time, I like to give you a behind-the-scenes look at what clients at money management firms come to expect from their investing teams. Yesterday, we learned U.S. job openings fell to their lowest levels since March 2021. And the report could not have come at a more important time. The U.S. labor market is now cooling pretty rapidly. In the last few weeks, we’ve had: - U.S. Non-Farm Payrolls disappointing. Remember the U.S. needs to add about 100k jobs each month to keep the unemployment rate stable, and NFPs are converging towards this number. - Revisions to March 2022–March 2023 NFPs, which lowered the private jobs added in this period by about 30k per month on top. - Alternative live job market gauges like the Indeed or LinkedIn hiring rates continue to point to weakness building up. - Quit rates in the private sector are down to 2.50%, which is the lowest level seen since 2019, meaning fewer people are feeling comfortable quitting their jobs today as the labor market slows down. Why is this good news? As Fed watchers know, this is Chairman Powell’s preferred indicator of the job market. Last week, Jerome Powell stole the economic show with his comments being streamed live from Jackson Hole. Powell maintained a hawkish tone regarding rate hikes. He also reconfirmed the Fed’s goal of getting inflation – that’s been stickier than many expected – back to its targeted 2% rate. That brought the odds of a 25-basis point (0.25%) rate hike next month up to about 67%. It also boosted the odds of one more similar hike before the year closes. But with the labor market cooling, the Fed may be more willing to ease on the hawkish tone. Stocks have been up this year, but it’s not been because investors think companies will bag bigger profits in the immediate future. In fact, Wall Street analysts think companies in the S&P 500 will see earnings per share rise just 1% in 2023, compared with 2022. The S&P 500, on the other hand, is up 17%. In other words, share prices are outpacing puny expectations for profit growth. What has happened is that investors have been willing to pay an expanding P/E multiple, which has sent stock prices higher. Economist Edward Yardeni publishes the following graph, which provides an analysis of the weekly forward earnings multiple of the S&P 500 by increments of 2, between 10X to 24X earnings. This provides an easy way to see how price tracks the parallel channels of earnings multipliers. Yardeni refers to this as his Blue Angel analysis, named after the flying Blue Angels who always fly in parallel formation. If rates were to continue higher, then it would normally imply that investors would pay a lower multiple for stock earnings which would lead to lower stock prices, all else being equal. If earnings also start to fall, then this can compound on the downside. The current earnings multiple remains above the historical average, but if rates continue to drop back here, it may give stock investors some breathing room. This year has been a year where the market’s speculative pulse has been rising and bullish sentiment has been the rule. Normally these periods occur when monetary policy is “easy” which clearly has not been the case this year. To be clear, the Fed shows no signs of easing, but with inflation in retreat this year, investors have been willing to bet on the if. Here at Avalon, we’re focused on educating you to see the markets the way we do, in a more sophisticated way. For over 20 years, we've researched and tested the strategy we offer our clients, and we’re happy to be able to bring you along for the ride too. Our free newsletter ADAPT delivers weekly updates on our firm’s strongest-performing investment method, plus intel on major shifts in the stock market to help you make more informed investment decisions. [Click to subscribe and join us now]( – we’ll also give you our three most popular downloadable ebooks for free when you sign up. They’ll come to your inbox immediately and after that, you’ll hear from Avalon's ADAPT newsletter with investment tips and ideas. [Start now to make sure all your investments are on the right track](. DISCLAIMER: True Market Insiders sent this to you on behalf of a third party, Avalon, a registered investment advisor. Avalon and True Market Insiders are separate entities. Neither company owns the other. Both companies are owned by Chris Rowe. This article is an advertisement to sign up for a free e-letter called ADAPT, which is published by Avalon. True Market Insiders is NOT a registered investment advisor and is not licensed to give advice. True Market Insiders is a financial publishing firm that broadcasts and publishes educational investment material for educational purposes only. [YouTube]( [Facebook]( [Twitter]( [Instagram]( [LinkedIn]( DISCLAIMER ©2023 by True Market Insiders, LLC, Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of: True Market Insiders, 7901 4th St. N STE 6113 St. Petersburg, FL 33702. The information contained herein has been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. True Market Insiders LLC is not an investment advisor and is not licensed to give specific financial advice. The chairman of True Market Insiders, Chris Rowe, is also the CEO, CIO and owner of Rowe Wealth Management LLC, which is not owned by and is not the owner of True Market Insiders. True Market Insiders will remove email addresses from our mailing lists if that email address hasn’t interacted with our content during a prolonged period. If you think your email was removed in error, please contact customer service at 855.822.0269 or support@truemarketinsiders.com.   [Unsubscribe]( | [Manage Your Preferences]( | [Privacy Policy](