A rare sighting

Still tight labor market

New unemployment claims decreased last week to 229k as the labor market remains strong despite the other uncertainties across the economy. We reached a 53-year low of weekly unemployment claims in March (166k) and have been relatively consistent in the ~200k range ever since. Though there have been reports of job cuts in the tech and housing sectors, it doesn’t seem to have flowed through into the entire labor market. There are still 11.4m job openings, which is about 2 job openings for every unemployed person.

Moral of the story: I’ve been trying to find any sort of giveback in the labor market to indicate bigger cracks in the health of the consumer, but it hasn’t quite showed up yet in a systematic way to draw meaningful conclusions. We’d be looking for new jobless claims to remain above 250k more consistently in order to really see some slack in the labor market, and that just hasn’t happened yet.

Trying to find some hope

Consumer sentiment for June was revised down 0.2 points to 50 as consumers felt worse about current conditions. Based on the survey results, 79% of consumers expect business conditions to be troubled in the year ahead, the worst sentiment on business conditions since 2009. And 47% of consumers blame inflation for eroding their standard of living (…who are the 53% not feeling the pressure from inflation? Do they live under a rock?).

Moral of the story: While consumer expectations for current conditions deteriorated, consumer expectations for future conditions actually got marginally better as future inflation expectations decreased slightly. Happy consumers spend money on goods and services (yay economic growth!) while concerned consumers tend to save (look out below!).

Where do we go from here?

This week saw a rare sighting for the year so far – stocks ending the week in the green as they seemed to have gotten into oversold territory after last week’s bloodbath. The question is where do stocks go from here? Stocks are *generally* valued based on a multiple of their earnings. Higher multiples are justified for higher levels of growth. What we’ve seen happen so far is that multiples have come down with the expectation for slowing growth. What we haven’t yet seen is earnings expectations actually come down to reflect that slowing growth. So, the expectation would be that the next leg down for stocks would happen as earnings expectation come down.

Moral of the story: More pain likely ahead in the stock market, which means you have to pick and choose your spots.

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