Economy Catching Up To Markets?
By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group
It's usually said that markets trade ahead of the economy. So is the economy catching up? 
Equities declined late in the week, but rebounded on Friday despite a poor jobs report. Over the last couple of months, we've seen considerable weakness in the Microchip & Semiconductor sector. Since the peak on July 10th, Semiconductors as a group are down more than 16%. High valuations and volatility in tech names is spilling over to other sectors. 
Of the 20 valuation metrics measured by Bank of America, 19 are showing the S&P 500 Index is statistically expensive. If we compare valuation to earnings, the disparity between the two is the highest its been since the late 1990s. At the same time consumers' expectations are unusually high. When asked by the Conference Board in their "Consumer Confidence" survey, investors still think that stock prices will be higher 12 months from now. So much so, in fact, that the sentiment from the survey hit an all-time high this week - a euphoric indication to be sure.
On the jobs front, a poor report last week is being spun one way and we believe that to be in error. Not only was Friday's report weak (only 12,000 jobs added), but there was another revision to last month's data (-21,000 jobs). 
It represents the 7th revision lower of jobs in the last 10 months. The popular narrative last week was that October's jobs report was affected by hurricanes Helene & Milton. This is a false narrative. First, most of the hurricane impact on the household survey shows up in the number of "employed" workers who were either a) not at work due to bad weather or b) worked part-time instead of full-time because of the hurricane impacts. Second, we've had bad September/October periods before with multiple hurricanes and the jobs reports for October were not nearly as bad as this one. 
Going back to 1985, there were 8 years when there was more than 1 hurricane in the months of September & October affecting multiple states. In all of those periods, except for this one, the jobs report showed more than 100,000 jobs added in the month of October. A further look at the JOLTs numbers from last week involves the number of "layoffs" reported. Since bottoming in 2021, the number of layoffs has steadily grown by more than 570,000. At the same time the labor market is softening, consumers are feeling pressure. According to the survey of consumer expectations by the New York Federal Reserve, more consumers with $100,000 incomes and higher expect to have a debt delinquency in the next year. There is a 98% probability of a 25 basis point rate cut by the Fed this week. It's election week, so expect volatility this week.
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