Cracking Labor Market Primes Investors for a Stock Jackpot

This morning, the Bureau of Labor Statistics (BLS) released an economic report to very little fanfare. Yet, in our view, that new data may just prime stocks to soar to all-time highs by the end of the month. 

Of course, we’re talking about the BLS’ Current Employment Statistics Preliminary Benchmark Announcement report. In it, the bureau provided revisions to the U.S. economy’s employment numbers between April 2023 and March 2024. 

The revisions? Negative 818,000 jobs.   

In other words, the U.S. economy added 818,000 fewer jobs in the year ended March 2024 than previously thought. 

That’s a big deal – because while the BLS always provides these revisions, typically, they are small. In the last 10 years, the bureau’s annual revisions have averaged plus or minus 0.1% of the total employment number. 

But at -818,000 jobs… this revision stands at an unusually large 0.5% of the total unemployment number. That is 5X the norm – and it is in the negative direction. 

So, what does that mean?

It means the U.S. labor market – once viewed as rock-solid – is cracking. 

The Labor Market Cracks Are On Full Display

Oddly enough, though, a weakening labor market is good news for stocks. That’s because it all but guarantees an interest rate cut at the Federal Reserve’s next meeting in September. 

After all, the Fed has a dual mandate: stable prices and full employment. And according to the incoming data, prices have reached stability. 

Excluding housing, inflation has been below 2% in 10 of the last 15 months, meaning the Fed has effectively beaten inflation with rate hikes. 

Employment, on the other hand, is looking less than ideal. The unemployment rate is on the rise, as are jobless claims. And we just learned that what was thought to be robust job growth throughout 2023 was actually quite tepid growth. 

Now with the inflation problem solved and labor markets cracking, the central bank will be compelled to cut interest rates very soon. And it will likely keep cutting several times into the end of the year. 

Those rate cuts should breathe life back into the hobbled U.S. economy and help power stocks to all-time highs. 

That is why we would remain buyers of stocks on all weakness and choppiness right now. 

The Final Word

In our view, the go-forward path for markets is clear and positive. Rate cuts are coming just in time to “save the day.” The economy will regain strength. Earnings will push higher, and so will stocks… 

Especially AI stocks. 

Indeed, for all the talk out there of an “AI Bubble,” the data actually suggests that we are in the early innings of a continued AI Boom. 

Just last night, for example, electronic design firm Keysight Technologies (KEYS) said that businesses are re-architecting data centers for AI, leading data center operators to upgrade to high data-rate networking products in bulk – massively boosting Keysight’s business. On a conference call with analysts, the company’s CEO said that it’s becoming quite clear that AI will be a transformational technology. 

Meanwhile, this morning, integrated circuit maker Analog Digital (ADI) said that it is observing customers’ huge efforts to modernize and digitize the electrical grid in response to the massive AI infrastructure buildout going on right now. 

Telecom infrastructure firm Dycom Industries (DY) noted that demand for low-latency AI data center connectivity solutions is growing rapidly. Data center operator GDS Holdings (GDS) provided a very bullish read on the Asian data center market this morning, too. 

And tech solutions provider Unisys (UIS) reported a 25% increase in new business signings in the first half of 2024, primarily driven by new AI services. Its large language models are helping media firms create dynamic ads for targeted audiences and allowing restaurants to collect data on payment channels to improve restaurant operations. 

The evidence here is clear to us. The AI Boom is yielding real and significant financial benefits across the global economy. 

So, don’t just buy stocks. Buy top AI stocks – that’s where the growth is happening right now. 

Learn more about some of the picks we’re eyeing.

_{On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.}

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