By Michael O’Connor, theislandinvestor.com

A new year, a new market rally.

Lower inflation, a Chinese reopening boom and a resilient labour market resulted in the biggest January gain in the S&P 500 in eight years as Wall Street switched from cautious to confident at the drop of a hat.

In true market fashion, last year’s losers have turned into this year’s darlings. The Tech-heavy Nasdaq Index jumped almost 11% (now up over 17% at the time of writing).

Facebook for example is now up 110% following its 66% loss last year, Netflix is up 120% while Coinbase is up 140%.

Job losses

One of the major contributors to the current market run has been the continued strength in the labour market.

Despite headline news about countless lay-offs, we remain in one of the strongest labour markets in history.

In the US, 517,000 jobs were added in January - the largest monthly gain since last July.

The unemployment rate is now 3.4%, the lowest level since early 1969.

Tech lay-offs have been front and centre, but as always, there is far more to a story than the headline the media are pushing.

Yes, 1.5 million people lost their jobs in the US during December.

However, the crucial data point the media left out was that US employers hired 6.2 million people over the same time period.

In fact, despite the media focus, the ratio of lay-offs to hires are well above historical standards.
Ireland’s seasonally adjusted unemployment rate was at 4.4 percent in January well below the 5% from the same period a year previous.

Three points to note

Despite the struggles in the tech industry at the moment, it only represents a tiny proportion of the overall labour market. Job losses in tech have been more than offset by new job openings across airlines, hospitality and retail.

Even during periods of robust economic growth, employers subtracted hundreds of thousands - and sometimes millions - of jobs per month.

Data needs context

Yes, current tech cut backs are concerning but there is more to the story than just one data point. During the pandemic these companies pulled forward three years’ worth of demand into one. Consumer tech demand exploded. Head counts expanded rapidly. The pace was never going to be sustainable.

From its fiscal year-end in September 2019 to September 2022, the employee count at Amazon doubled, Microsoft’s rose 53%, Google parent Alphabet Inc.’s increased 57% and Facebook owner Meta’s ballooned 94%.

Wall Street Journal

A single data point never tells the whole story, but why let the truth get in the way of a good story eh?

The truth is, for now, hiring remains strong, and the volume of current job openings out there suggests hiring could remain strong in the months ahead.

Some leading indicators such as wage growth, temp roles and quit rates continue to fall, pointing towards the potential rise in unemployment numbers to com - but we are not there yet.

In my opinion we have reached ‘peak’ employment conditions. As the lag effects of tighter economic policy take hold, this labour market strength will start to show more signs of weakness, but we are slowing from a very strong positions. Don’t let the headline news send you into a frenzy just yet.

Find my full market outlook on www.theislandinvestor.com.

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mike@theislandinvestor.com or simply scan the QR code.