The cooling job market is increasingly supported by more data! Following the JOLTs job openings report, the U.S. November nonfarm payroll data was also released, falling short of expectations for several consecutive months. After the nonfarm payroll report was published, there was a pre-market rally in U.S. stock futures, but upon opening, the market experienced a day of opening high and closing low. What happened?
Is the slowdown in employment not what the market has been anticipating all along?
According to the U.S. ADP employment data, the number of employed individuals increased by 103,000 in November, lower than the expected 130,000, with a decrease in wage growth and a 5.6% increase in wages for existing employees. Employment in medium-sized enterprises increased while it decreased in small businesses, with growth driven by the service and financial sectors, and declines in the manufacturing and construction industries. Employment in the leisure and hospitality sector decreased, indicating a potential for more moderate hiring and wage growth in the economy. Department of Labor data shows job openings fell to 8.73 million in October, hitting a new low for 2021.
Looking ahead to the non-farm payroll data set to be released on Friday, the market expects non-farm employment to be around 189,000, with the unemployment rate remaining stable at 3.9%. The Federal Reserve will closely monitor employment data, and a rise in the unemployment rate could trigger a rate cut. Expectations for a rate cut have increased in the market, leading to a rise in U.S. stock futures and a decline in the U.S. dollar.
However, after the market opened, U.S. stocks experienced a gap up followed by a decline, with profit-taking evident. Why did the market open high and then trend lower?
According to financial analysts, after a continuous rebound, the weakening employment data and falling oil prices have raised concerns about the economy in 2024. Therefore, some investors are choosing to take profits, causing the U.S. stock market to trade in a more indecisive manner at this juncture.
In the current economic environment, this interesting and complex phenomenon unfolds: the U.S. employment market continues to slow down, with job vacancies and small non-farm payroll data falling short of expectations. Meanwhile, U.S. stocks exhibit a trend of opening high and then declining, with profit-taking evident. All of this is happening against the backdrop of sustained declines in oil prices and rising concerns about the future economy. The market seems to be caught in a dilemma between the end of rate hikes and economic worries, appearing to be in a difficult position.
Signs of a slowdown in the job market are becoming increasingly apparent. The latest ADP employment report and nonfarm payroll data both indicate that the number of new jobs created is below expectations. This may suggest that, despite the gradual recovery of the U.S. economy from the pandemic, the pace of job market recovery is slowing down. Typically, a weak job market is a signal of an economic slowdown, which should raise concerns among investors.
However, at the same time, we see a phenomenon in the U.S. stock market where it opens high but closes lower. This trend indicates that the market may be initially driven by positive factors at the opening, but then investors start to take profits, leading to a decline in stock prices. What is the logic behind this?
Yan Cai believes that the market has already to some extent anticipated the slowdown in the job market. Therefore, when the actual data is released, the market reaction may not be very strong. In addition, a slowdown in the job market may also lead investors to expect the Federal Reserve to be more cautious in monetary policy, possibly not rushing to raise interest rates, which is a positive signal for the stock market. The rise in stock prices at the opening may reflect this expectation.
But why does profit-taking occur afterwards? This may be related to the current market’s uncertainty. Against the backdrop of economic recovery, investors may have doubts about the continued rise in the stock market. Especially when facing potential negative factors such as a slowdown in the job market, some investors may choose to cash in profits promptly after stock prices rise to avoid potential risks in the future.
The continuous decline in oil prices is also an important economic indicator. Typically, oil prices are seen as a barometer of global economic health. The current decline may reflect concerns about a slowdown in global economic growth, especially as major economies such as China and Europe face their respective challenges.
Concerns over oversupply in the United States compounded by uncertainties surrounding OPEC+ production cuts have led to a breach of the $70 mark for WTI crude oil, with Brent crude also experiencing a significant drop below $75.
WTI crude oil fell below the $70 per barrel mark for the first time since July this year, triggered by worries of oversupply due to significant U.S. exports and doubts about OPEC+’s ability to implement production cut plans. Since OPEC+ announced further production cuts last Thursday, oil prices have continued to decline, highlighting the challenges the organization may face in balancing the market in the first quarter. According to estimates from a ship tracking company, U.S. crude oil exports are close to a record-breaking 6 million barrels per day. Additionally, Saudi Arabia made its largest price cut for official selling prices to Asian customers since February on Tuesday.
In such a complex economic environment, the market appears to be at a delicate balance point. On one hand, the end of the rate hike cycle, which is typically seen as a positive for the stock market, may be approaching. On the other hand, uncertainties in economic growth and potential slowdown could dampen market optimism. Investors may exhibit a more cautious attitude in this scenario, reflected in market volatility and profit-taking behavior.
At this juncture, it is advisable to take a broader view. In the current environment filled with uncertainties and short-term fluctuations, it is crucial to focus on the long-term trends and development logic of industries rather than be swayed by short-term market movements. I remain particularly bullish on the field of AIGC (Artificial Intelligence and Global Connectivity) and its role in driving the Fourth Industrial Revolution.
Legendary investor Warren Buffett once said, “The stock market is a short-term voting machine, but a long-term weighing machine.” This implies that short-term market fluctuations are more influenced by investor sentiment and incidental factors, while in the long run, a company’s true value and performance are the key determinants of stock prices. Therefore, paying attention to the fundamentals of companies and the long-term development trends of industries is crucial for achieving long-term investment success.
As a field that integrates the latest technologies, AIGC is at the forefront of the Fourth Industrial Revolution. Artificial Intelligence (AI), as the core of this revolution, is gradually changing the way we live and work. The application of AI technology has spread across various sectors, from smart manufacturing to healthcare, from financial services to transportation and logistics. With the advancement of technology and deepening applications, AI is expected to continue driving global economic growth in the coming decades.
The strengthening of global connectivity, especially through the internet and mobile communication technologies, has provided a powerful impetus for the development of AI. This connectivity not only facilitates the rapid flow of information but also makes big data analysis possible, which is a key driving factor for the development of AI technology. With the deployment of 5G and future 6G networks, global connectivity is expected to reach a new level, further accelerating the innovation and application of AI technology.
As another investment guru Peter Lynch once said, “Stay away from the noise of the market and focus on the fundamentals of the company.”
When considering investments in the AIGC field, it is important to deeply understand the potential of these technologies and how they will impact the future of specific industries and companies. Investors should pay attention to companies that have strong technological capabilities, clear business models, and robust financial conditions in the fields of AI and global connectivity.
In the face of short-term market fluctuations, maintaining a long-term and strategic perspective is crucial. The AI and GC fields, as key components of the Fourth Industrial Revolution, offer long-term investment opportunities. By conducting in-depth analysis and understanding the development trends and potential impacts of these technologies, investors can better grasp future investment opportunities and achieve long-term investment appreciation.
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