Stocks Labor Ahead As Job Market Softens

Stocks and bonds simultaneously rebounded as softening labor market data fueled hopes that interest rates might be sufficiently restrictive at current levels. Let’s see what else you missed.
Today’s issue covers the JOLTs data underscoring a softening labor market, a mixed bag of earnings results, and more from the day.
Check out today’s heat map:

11 of 11 sectors closed green. Consumer discretionary (+2.49%) led, and energy (+0.27%) lagged.
The Chinese property crisis continues to develop, with the country’s banks cutting existing mortgage rates to help support the market. Meanwhile, in the U.S., the June Case-Shiller index showed a 0.7% MoM increase in home prics as low inventory elevates prices for the market’s remaining buyers.
3M shares gained another 2% today after finalizing a $6 billion settlement over 300,000 individual lawsuits alleging it sold faulty earplugs to the U.S. military.
Telecom stocks AT&T and Verizon caught a bid today after receiving an upgrade from a Citi analyst who cited cheap valuations and stabilizing competition in the wireless market.
Biotech stock Ginkgo Bioworks jumped nearly 25% after announcing a five-year cloud and AI partnership with Google Cloud. The company will work to create new large language models for use in biology and biosecurity.
Bitcoin and related equities jumped sharply today after the U.S. Court of Appeals for the DC Circuit ruled that the Securities and Exchange Commission (SEC) wrongfully denied Gayscale’s attempt to convert its popular bitcoin trust GBTC into an ETF. ₿
Other symbols active on the streams: $AMBA (+4.48%), $TTOO (-18.93%), $ICCT (+254.72%), $EBET (+37.53%), $HE (-4.65%), $VFS (-43.84%), $BETR (-16.77%), and $GNS (-26.52%).
Here are the closing prices:
S&P 500 4,498 +1.45%
Nasdaq 13,944 +1.74%
Russell 2000 1,896 +1.42%
Dow Jones 34,853 +0.85%
Quit Rate Underscores Labor Softening

In writing about the economy, we’ve discussed the slow but steady signs that the labor market is softening. And those signs got a big boost with the July JOLTs report. Let’s take a look.

The Job Opening and Labor Turnover Survey (JOLTs) is a great leading indicator for the U.S. job market. It’s leading in that it typically turns negative well ahead of lagging indicators like the unemployment rate and average hourly earnings, which we’ll look at later this week.

The report is broken down into job openings, hires, and separations (quits, layoffs, discharges, and ‘other separations’ like retirement or disability).

First, we want to look at the number of job openings. This tells us the demand side of the equation because it highlights how many jobs companies are looking to fill at any given time. When companies want to slow down, they typically start by reducing hiring first, opting to squeeze more productivity out of their existing workforce.
Looking at the data, it’s clear that total job openings are trending lower after peaking in March 2022 at nearly 12 million jobs. While that’s still above pre-pandemic levels of roughly 7 million, a 25% reduction over the last eighteen months is a big deal. And more importantly, the number of job openings per available worker has shrunk from a ratio of 2:1 last year to roughly 1.5:1 today.

The extreme tightness in the labor market gave workers a lot of leverage over the last two years, causing them to quit their jobs and take new positions with significant pay increases. The number of quits shows how much confidence workers have in their ability to get a new, better job. And it also is an indication of upward or downward wage pressure.

Well, with July’s data, U.S. job quits are now back below their pre-pandemic peak after peaking in early 2022. The downward trend suggests workers feel less confident in their ability to get more money elsewhere and are instead staying put in their current roles.

The next major step in seeing the labor market soften is an uptick in layoffs and initial / continuing jobless claims. After companies try to get by with their current workforce, their next step to cut costs is starting to lay off workers or incentivize them to quit. That will show up in both the JOLTs data and the weekly jobless claims data as those impacted file for unemployment benefits.
So far, there’s not been a significant uptick in these figures. Although they’ve risen from their 2022 trough, initial claims remain nearly historically low pre-pandemic levels along with continuing claims. This indicates that those who lose or leave their jobs can still find employment elsewhere, which is typical in a strong labor market.

To be clear, it’s still a tight labor market by many standards. But the clear downward trends in these JOLTs leading indicators and a slight uptick in claims show that the Fed’s restrictive policy is having its desired effect (albeit slowly). That’s why bonds and stocks both rallied today, as it suggests a Fed hike is likely off the table for its September meeting (and potentially future meetings).

The last time we saw a major development like this was in October, when job openings saw their biggest plunge in years. That helped cement the downward trend that’s continuing today. And although the Fed and market are excited to see it, workers are likely not.
Needless to say, investors will be closely watching the remaining employment and inflation data before we all head out for a three-day Labor Day Weekend.

It was another mixed earnings day, so let’s recap some of the biggest movers.

First, let’s start with electronics retailer Best Buy, which beat earnings and revenue expectations by $0.16 and $0.08 billion, respectively. CEO Corie Barry reiterated her belief that this year will be “the low point in tech demand,” with the consumer electronics industry seeing stabilization next year via the natural upgrade and replacement cycles. With that said, Best Buy continues to see consumers revert to “pre-pandemic behavior.” They’re looking for great deals and convenience, so promotions will be key to spurring demand.

Overall, the company continues to cut costs and diversify through higher-margin initiatives like its “My Best Buy” subscription program. As a result, it was able to raise its full-year earnings per share outlook and improve its comparable sales guidance while narrowing the top end of its revenue guidance. $BBY shares jumped 4% today but remain in a 15-month sideways trend.

Furniture retailer Big Lots had itself a big day after its adjusted loss per share of $3.24 on revenues of $1.14 topped the $4.11 and $1.10 billion consensus view. The company says its core lower-income customers remain under significant pressure and have limited capacity for higher-ticket discretionary purchases. However, many of the company’s key metrics improved more than anticipated during the quarter, which was a positive enough sign for investors. $BIG rose 27%.

Looking overseas, e-commerce site Temu’s owner PDD Holdings soared after reporting strong sales. Revenue rose 66% YoY to $7.2 billion, driven by strong marketing spend in China and its international expansion. The company’s promotions and bets on lower-tier cities have allowed it to capture market share from larger competitors, Alibaba and

Despite property market stress and weaker-than-expected economic growth this year, CEO Zhao Jiazhen says the company is seeing a continued improvement in the macro trends and consumers’ willingness to shop. For now, investors are focused on its strong revenue growth and not its narrowing margins. $PDD shares 15% today to about six-month highs.

Staying in China, shares of electric vehicle maker Nio plunged before recovering sharply along with the market. The company missed on both the top and bottom line, with its loss per share doubling YoY as deliveries slipped amid a transition to its updated vehicle platform. The Chinese EV market remains extremely competitive, but executives anticipate solid growth in vehicle deliveries in the years’ second half. $NIO shares closed down 1% on the day.

And to wrap up, Calvin Klein and Tommy Hilfiger parent PVH flagged solid revenue growth in Asia during its second-quarter results. The company’s adjusted earnings per share of $1.98 on revenues of $2.21 billion topped the $1.76 and $2.19 billion expected by analysts. Despite the solid performance in Asia, executives reaffirmed previous full-year guidance of 3% to 4% revenue growth and non-GAAP earnings per share of $10.35. $PVH shares were up 3% intraday and another 3% after hours.
Bullets From The Day:
Regulators force regional banks to issue more debt. U.S. regulators unveiled plans to force regional banks to issue debt and bolster their so-called living wills, steps meant to protect the public in the event of more failures. All American banks with at least $100 billion in assets would be required to maintain long-term debt levels equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is higher. This will create moderately higher funding costs for regional banks but reduce their liquidity and solvency risk. CNBC has more.

Amazon raises free shipping minimum as costs bite. The retail giant will now require non-Prime members to purchase at least $35 worth of products to qualify for free shipping, up from $25. With elevated freight, labor, and delivery costs, the company is not the only retailer taking action to shift some of that burden back onto the consumer. Overall, it hopes that raising the threshold for free shipping will help drive more Prime membership signups. More from CNN Business.

Social media sites continue to lower the bar for creators to get paid. As competition for creators and users heats up across the social media space, more and more platforms are reducing the requirements needed to participate in their partnership programs. Twitch is the latest company to make a change, allowing higher subscription tiers to count extra towards meeting the 350 paid subscriber requirement for its Partner Plus program. TechCrunch has more.
Generative AI tools are coming to your automobile. General Motors has teamed up with Google to use artificial intelligence (AI) chatbots to handle simple OnStar calls, freeing up the service’s human employees to address more complex requests. And the company has more AI initiatives planned, with executive VP for software and services Mike Abbott saying, “Generative AI has the potential to revolutionize the buying, ownership, and interaction experience inside the vehicle and beyond…” More from The Verge.
Insurers cut jobs to preserve profitability as costs rise. Farmers Insurance is the latest industry player to make cuts, laying off 11% of its workforce as part of a corporate restructuring effort. The California-based insurer’s 2,400 job cuts impact all lines of its business as it looks to improve efficiency and long-term profitability amid a slew of macroeconomic challenges. It hopes its leaner structure will make it more nimble to handle future challenges and opportunities. AP News has more.

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