How Will Weak Employment Numbers Impact Markets?

Despite expectations for 50,000 jobs to be added last month, the ADP reported a loss of 123,000 jobs in their December report. The labor market has been showing signs of weakening for a few months now as Covid-19 case numbers remain high. As long as this pandemic rages on and vaccination rollout remains slow, the economy will continue to struggle.

Economists now estimate a range of -50,000 to +302,000 for the government employment report tomorrow. Whether the result is positive or negative, one item remains clear: The stock market is not the economy.

The market is already looking ahead to the summer and beyond, the expectation being that 2021 will look great compared to 2020 and make stocks more attractive. Further, the Fed will continue printing money and buying up corporate bonds at rates previously unseen. The market is flooded with cash that begs to be spent while interest rates are so low.

Meanwhile, the participation rate in the labor market remains low and the unemployment rate may rise above 7% after the December results. In reality, the unemployment rate is much higher if one includes the underemployed and workers no longer counted as they have stopped looking for work. While these figures are much better than the 20% we saw in April, it is disheartening to see the labor market once again weakening after 8 months of preparation.

Eventually, the unemployment figures will influence market sentiment once again. Traders will likely view tomorrow’s results and chalk it up to the pandemic once again, then shrug it off as vaccine news continues rolling out. This process has been going on for months and is a useful visual to how wealth gaps are created in real time. Those able to take advantage will, and those that cannot will fall behind by remaining stagnant at no fault of their own.

The incoming Biden administration claims the priority will be on infrastructure, providing numerous jobs and helping to get the economy moving again. A similar plan was used at the start of the Obama presidency after the Great Recession with positive results.

The pandemic will need to be resolved before any major projects can begin, but vaccine progress has provided a glimmer of hope to that end. As with any report, traders should prepare for increased volatility as economic data can quickly move markets. It is important to employ proper risk management techniques such as protective stop loss orders.

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By Jonathan Prop

Jonathan Prop is an independent financial advisor. He has been working in finance for the last 20 years. After retiring early in his 40s, Jonathan decided to help others get to grip with financial markets, particularly his area of expertise - forex!

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