Rising commodity price and the Consumer Price Index (CPI) may put inflation at center stage this week. Earnings season unofficially kicks off this week with JPMorgan Chase reporting on Wednesday. Workers are getting their voices heard as last Friday’s Jobs report provides more insights in the labor markets.
Inflation Continues to be a Recurring Theme as Commodity Prices Rise
(Monday Market Open) Rising oil prices (/CL) appear to be leading a rally in many commodities including RBOB Gasoline futures (/RB) and heating oil (/HO). The rallies add to a week where inflation may play a big part. On Wednesday the Consumer Price Index (CPI) will be released along with the FOMC Meeting Minutes that could provide insights to where the Fed governors see inflation going.
Investors must digest the information from a busy economic calendar along with the unofficial start of earnings season this Wednesday when JPMorgan Chase (JPM), BlackRock (BLK), Delta Airlines (DAL), and others announce their third quarter results. Additionally, Monday starts with a closed bond market in recognition of the Columbus Day holiday. This could result in lower volumes for stock trading. Lower volumes can increase the risk in trading which is why many traders may choose to reduce the size of their trades on Monday.
Investors already have a lot to digest with a couple of interesting developments over the weekend. First, Goldman Sachs (GS) cut its forecast on U.S. economic growth. On Sunday, Reuters reported that declining fiscal support and the trouble getting semiconductors are leading to the slowdown. Additionally, Southwest Airlines (LUV) had to cancel numerous flights. The company cited weather and personnel scheduling problems.
On the positive side, Morgan Stanley analysts started coverage of SoFi (SOFI) with an overweight rating. SoFi is fintech service company that offers home and personal loans along with credit cards. The company was up more than 4% higher in premarket trading.
Last Friday, investors got a chance to review the disappointing September jobs report, but bond traders didn’t seem to care. The 10-year Treasury Yield (TNX) rose 2.16% on Friday, which could suggest that the report wasn’t bad enough to keep the Fed from tapering its bond-buying program.
While the headline “194,000 jobs created” was less than half of what was expected, the report came with upward revisions to the August jobs report, which means the quarter may have been better than initially thought. Additionally, the unemployment rate fell to 4.8%, which was also better than expected, although much of that was people leaving the workforce which means they’re no longer counted in the report as part of the workforce. Nonetheless, there’s enough positives that bond investors appear to be preparing for the Fed to stop buying so many bonds.
Friday’s Employment Situation report showed low job growth despite a large number of job openings. Investors are looking for reasons why it’s difficult to find workers to fill these jobs. One reason could be what Texas A&M associate professor of management Anthony Klotz calls “The Great Resignation”. Speaking with Bloomberg back in May, Klotz observed that many workers were changing their career approach after finding a new interest in their private lives during the pandemic. Workers are now looking for careers that allow them to work from home or be home more often to focus on family, personal growth, and passion projects, versus the 9-to-5 grind.
The U.S. Bureau of Labor Statistics reported that four million Americans quit their jobs in the month of April and another four million in July. However, there was a record 10.9 million job postings at the end of the month. Business Insider reported last week that 73% of workers actively think about quitting their jobs.
According to an article by Ian Cook in the September Harvard Business Review, there are two key trends. First, resignations are highest among workers 30 to 45 years old, while resignation rates were lowest among the 20 to 25 and 60 to70 years old age groups. Second, resignations are highest in tech and health care.
Research by Limeade from March 2021 to July 2021, found that 40% of respondents cited burnout as their top reason for leaving. In fact, 28% were so burned out that they left their jobs without having a plan. When looking for new jobs, 40% of respondents wanted to work remotely and 37% wanted higher compensation.
In order to adjust, companies may need to be more flexible. Klotz also suggested remote work and even a shortened work week could entice workers into staying. Cook suggested digging into the data to determine what’s driving behaviors such as lack of pay increases or opportunities for advancement.
It’s difficult to say if these resignations are permanent. Klotz suggested that in a year or two, workers may decide they miss their jobs and “boomerang” back to them. However, supply chains can’t wait for the boomerangs because products continue to back up. Therefore, companies may continue to raise salaries, provide incentives, and increase benefits, which translates to increased employee costs on top of supply costs. Higher costs could result in lower earnings or increased prices on the final products. Higher prices could translate to fewer units sold and therefore lower earnings. The Great Resignation may not be so great for future corporate earnings.
CHART OF THE DAY: JOLTED The number of job openings has skyrocketed during the pandemic. Job openings are part of the JOLTS or Job Openings and Labor Turnover Survey that tracks job openings, hires, and separations. Find JOLTS under the Economic Data subtab of the Analyze tab. Data source: FRED®. FRED® is a registered trademark of the Federal Reserve Bank of St. Louis. The Federal Reserve Bank of St. Louis does not sponsor or endorse and is not affiliated with TD Ameritrade. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Wizard Staff: Employers may need a little magic to fill their open positions, which is why many of them are turning to staffing companies for help. The labor shortage has been a boon for staffing companies, which may be why Kforce (KFRC), TrueBlue (TBI), Heidrick & Struggles (HSII), and Cross Country Healthcare (CCRN) rallied on Friday’s jobs report.
Many other staffing companies like Perficient (PRFT), Korn Ferry (KFY), and Paychex (PAYX) have also seen success over the previous 18 months. One staffing company that may go unnoticed is Microsoft (MSFT). Microsoft owns LinkedIn, which is a popular social network for professionals looking for work and businesses looking to hire. It has 740 million registered members from 150 countries. While Microsoft’s core businesses outweigh LinkedIn, the popularity of the platform is an interesting asset for the company.
Magic Carpet: Navigating supply chains requires a different kind of magic. Logistics companies are looking for creative ways to get resources to manufacturers and products to stores. Last week, Barron’s reported that large retailers like Walmart (WMT), Target (TGT), and Costco (COST) are placing orders early and relying on transportation experts like XPO Logistics (XPO) to ensure they can meet consumers’ holiday needs.
XPO is responding by getting more truckdrivers through their training programs and on the road quicker, but that doesn’t help the bottlenecks at the ports. While longshoremen are working hard and putting in extra hours, there just aren’t enough parking spots at the dock. Recently, at the Los Angeles port, there were 40 to 50 ships sitting in the water ready to come in. According to CNN, port managers are looking for ways to get truckdrivers in and out of the ports faster. Unfortunately, drivers are reporting waits of six to nine hours to get a shipping container on a truck and out on the road.
Refined Magic: All of this shipping takes fuel, and while there’s been a lot of attention on oil and natural gas, RBOB Gasoline futures (/RB) created a new 52-week high on Friday. As you probably know, gasoline is a refined byproduct of oil and is therefore linked to oil prices. ExxonMobil (XOM), Chevron (CVX), Marathon (MRO), and Reliance Industries are among the largest refiners of gas and oil. Most of the companies have interest in nearly every part of the energy market including green energy, so they don’t rely just on the refining and selling of gasoline. But the offering of refining does add a degree of product diversification to their respective value offering.
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