Market Update
Stocks Struggle
Stocks struggled as investor sentiment turned cautious amid rising bond yields. Markets were rattled initially by news that the Treasury raised its borrowing requirement for the third quarter by more than a quarter of a trillion dollars and on news that the Bank of Japan announced it would allow bond yields to rise after years of capping them.
Rising yields continued to pressure stocks in the wake of a surprise rating downgrade of U.S. government debt by a major credit rating agency due to its belief in expected fiscal deterioration over the next three years.
Stocks rebounded Friday morning, rising on modest employment data only to reverse and add to the week’s losses.
Mixed Signals From The Labor Market
Fresh employment data last week gave some conflicting signals about the labor market. A new JOLTS (Job Openings and Turnover Survey) report showed a small decline in job openings and layoffs in June, leaving 1.6 job openings for each available worker.1
Automated Data Processing’s (ADP) employment report reflected strong private sector hiring with a 324,000 increase in jobs, exceeding the consensus forecast of a 175,000 gain.2
The government’s monthly employment report saw a cooling in hiring as employers added 187,000 jobs in July. This was slower than seen in the first six months but enough to shave the unemployment rate from 3.6% to 3.5%.3
Why the Fed Can't Figure Out the Jobs Market
As the Fed continues its fight against inflation, one of the more challenging parts of the economy is gauging what's happening in the jobs market.
One July report showed the private sector added nearly 500,000 jobs, double the expectations. Meanwhile, another July report showed that job openings fell by 500,000, also above expectations.
In explaining why the Fed may boost interest rates again in 2023, Fed Chair Powell said, “What’s really driving it … is a very strong labor market.”
The accompanying chart shows why the Fed struggles to understand what’s happening with today’s jobs market.
As you can see, the number of self-employed people rose to an all-time high during COVID. But now it's falling at a rapid pace. What’s causing the drop? More people appear to be returning to work at 9-5 jobs, perhaps fearful that the economy might collapse into a recession. When economic growth slows, perceptions may hold that 9-5 jobs seem more secure.
The Fed has several mandates, including managing the nation's monetary policy to promote stable prices and maximum employment.
Sometimes, those two jobs can conflict. If you raise rates too high and economic growth slows in response, higher unemployment may be the outcome. Don’t raise rates enough, and inflation can raise prices. Add in the twist of how Covid influenced the jobs market, and you can see why the Fed may be scratching its head a bit with interest rates.
One of our favorite sayings is, “Don’t worry about the horse. Just load the wagon.” In this instance, perhaps a more accurate saying would be, “Don’t worry about the Fed. Just focus on the investment strategy we created.”
Does Patience Prevent Progress?
As the old adage goes, patience is a virtue.
Particularly in today's world of immediate gratification, having the ability to wait for things without getting upset, or to tolerate an unforeseen delay gracefully is an admirable quality.
But is there ever a point where patience prevents progress?
Read on for a motivating except from the Farnam Street Blog, where writer Shane Parrish differentiates between "Active and Passive Patience:"
The least effective form of patience is passive.
A person who is passively patient waits for the universe to give them what they think they deserve. Five years from now, they’ll still be waiting. Passive patience violates Newton’s third law, which states, ‘For every action, there is an equal and opposite reaction.’
No action. No result.
The world isn’t indebted to you, and no one is destined to come your way, tap your shoulder, and present you with the golden opportunity you’ve been waiting for. It doesn’t work that way.
The most effective form of patience is active patience.
Active patience implies taking significant steps today to set yourself up for future success. It’s about strategically preparing for what lies ahead—saving more than you spend and investing wisely, developing the necessary skills for future job prospects, choosing kindness over cleverness, and so on.
Here is the key lesson: Active patience puts the world on your side. If you go positive and go first, and you do so consistently, the world does a lot of the heavy lifting for you."
Mindset - The Power of Introverts
Susan Cain argues that introverts are often misunderstood and undervalued in our society. In her popular TED Talk, she shares her own experiences as an introvert and provides research that shows that introverts have unique strengths and talents.
Cain also challenges the idea that extroverts are always more successful, and she offers advice for introverts on how to thrive in a world that is often biased towards extroverts.
Her talk provides a much-needed counter-balance to the stereotype that extroverts are always more successful. Cain's research and personal experiences have helped many introverts to feel less alone and to realize that their introversion is not a weakness. This talk has also inspired many people to embrace their introversion and to use their unique strengths to their advantage.
Click below to watch Cain's full Ted Talk!