By Yogesh Kansal
The more things change, the more they remain the same.
Just when new indications are popping up on the horizon that the September jobs report, in all likelihood, will be brighter and stronger than projected, we have more bad news to reckon with in the aggravation of geo-political tensions between Iran and Israel.
So, after the initial rush of the massive 50 bps rate cut, markets are, once again, dripping with negativity and the sentiment is verging ominously towards a bearish pivot.
Nevertheless, at the risk of straining one’s optimism, one must press on ahead hoping that the Iran-Israel conflict doesn’t escalate further. If it so transpires, markets can aim higher because the September jobs report promises to be a glimmer of hope for the US markets.
For starters, data released by private payroll provider ADP on October 2, indicated that in the private space, employers added 143,000 jobs in September as against 103,000 jobs in August.
This is the first time since March that job growth has picked up and outperformed forecasters’ estimates. The estimate for September private jobs growth was 120,000. 143,000 jobs added against an estimate of 120,000 — what’s not to cheer?
Now, if the upbeat data is reflected in the upcoming September jobs report — to be unveiled on Friday in the US —- it would dampen the wave of pessimism around the labour markets.
Since the last FOMC meeting, the sentiment has been oscillating between risk-on and risk-off. A strong jobs report would emphasize that the recession doom’s day scenario is a little overblown, and the situation on ground zero is not as dismal.
This gives the Fed more elbow room to push ahead with a slower rate cut programme. We have two more FOMC meetings lined up this year, one in November and then in December. We should end the year with a percentage point rate cut —- two 25 bps rate cuts in November and December each.
Would the Fed push out 50 bps rate cuts in November and December? I don’t think so. This is because the optics of a back-to-back jumbo rate cut will be counter-productive, forcing institutional players to question if there is hidden bad news in the economy that the Fed can see but they can’t. If another 50 bps rate cut does come through this year, it could possibly trigger a domino effect, gripping markets with panic and sending investors scurrying for safer assets.
There are other developments that should also command investor attention, and alert them to more disruptions in the future. The outlook for the labour market in October seems sketchy. Over 30,000 workers are on strike at Boeing. If that wasn’t enough, dock workers on the US East Coast and Gulf Coast also halted work bringing half of the US shipping to a screeching halt. These two strikes would severely dent the October job figures if they continue in the second week of October as well.
What should investors do?
The AI rally has fuelled stocks to highs. A fallout of the over-concentration in the Big Tech firms is the marginalisation of other great businesses that have not received adequate investor attention.
Investment banks like JP Morgan, Morgan Stanley, Blackstone and Goldman Sachs have delivered respectable returns in the previous quarters.
Telecommunications companies like Verizon and T-Mobile have also delivered returns in the ballpark of 50% in the last year. Netflix and Spotify, two new-age platforms that command an immense subscriber base made investors richer by 47% and 99% this year.
Unfortunately a lot of Indian investors are confusing the US markets with a clutch of tech giants like Tesla, Meta, Apple, Microsoft and Nvidia. This is a missed opportunity in the US markets and portfolio returns of diligent investors. There are many lucrative opportunities — beyond the tech giants— in the mid-cap and small-cap space in the US, and with the rate cut on track, new pockets of value will emerge.
(Author is Cofounder & CMO, Appreciate)
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