By John Stewart, chief investment officer at Farmers Trust Co.
Week in Review: Job Market Softness Fuels Rate Cut Hopes
There hasn’t been a tremendous amount of job creation lately, with an average of just 58,000 payroll additions per month over the past six months. That compares with an average of 160,000 jobs per month in the prior six month period.
This past week showed more weakness, with the ADP employment report of private sector payrolls shrinking by 32,000 jobs during November.
Despite the weakness, jobless claims have been holding near multiyear lows, causing many to dub this as the no-hire, no-fire economy – meaning there’s not a lot of new hiring going on but companies are hanging onto the employees they already have, for the most part anyway.
Many are blaming the lack of hiring on the rise of AI, although the evidence for that claim is still somewhat debatable. Nevertheless, it makes sense that there could be some structural shifts occurring in the employment market as the economy evolves.
Either way, the market is getting more excited that another rate cut is on the way due to the softness in the labor market. The market should be careful what it wishes for, however, if this becomes a harbinger of economic weakness ahead.
Featured Insight: Ignore Short-Term Price Swings
If you’re a long-term investor, you shouldn’t be focused on what market prices are doing on a daily basis.
It might be fun to watch, but the market is going to test your emotional intelligence and get you to make bad decisions time and again if you give in to your emotions.
It’s much more important to have a disciplined strategy and investment plan that you stick to regardless of what the market is doing. If you can’t stomach the volatility, that’s OK – just know that you should keep a smaller portion of your portfolio in stocks and accept the fact that your average rate of return will likely be somewhat lower than an investor who’s willing to accept larger fluctuations in their portfolio.
What you absolutely should not do, however, is swing back and forth from pessimist to optimist based on price swings in the market – more likely than not, you’ll end up with poor results.
Looking Ahead: Tax Dynamics Could Drive Year-End Trading
As we get closer to the end of the year, tax considerations may increasingly drive investment decision making. You need to be aware of this when evaluating individual stock opportunities.
Given that investors are looking to harvest losses and avoid taking gains this late into the year, it could cause stocks that have underperformed to experience even more selling pressure while outperformers continue to rise due to a relative lack of selling pressure.
Keep in mind, however, that this dynamic could quickly flip come January, with the biggest winners of 2025 seeing immediate selling pressure in the new year while oversold losers experience a bounce.