Wednesday's Market Minute: Job Losses Will Likely Keep Mounting

The stock market and the economy are not the same at any given moment, but they are over time. Think less mirror image, more translated sine wave. Stocks have been in a bear market for nine months and the economy is slowing, but the resilience of the labor market is the reason why so many smart people right up to the Fed Chair himself refuse to label it a recession.

We’re about to get a crucial update on how true that is.

Economists expect Thursday’s jobless claims to inch higher again, and the consensus is that the employment report on Friday will show a 33% drop off in payrolls, from 372,000 to 250,000. It’s still an impressive figure, no doubt, but will add to building evidence that the backbone of the recovery is ailing a bit. Yesterday, Robinhood announced it would lay off 23% of its people. In June, Coinbase announced an 18% cut. Workforces are getting trimmed all over the tech industry, from Shopify to Oracle and even Microsoft.

It's not a coincidence that the layoffs are concentrated in the sector that’s been dragging on stock market performance the most: tech. The price performance of these stocks is both cause and effect in their fundamental stability. The stocks went up as the companies grew, the market got carried away with it, and so did the people running the companies whose livelihoods are directly tied to the market. Look no further than Shopify CEO’s comments about overestimating the e-commerce boom. For an outlier example, see Michael Saylor of MicroStrategy.

If layoffs correlate well with the stock market, then finding what correlates with the stock market should give us useful insight into projecting what happens with jobs. So far, higher interest rates and time away from the depth of the pandemic correlate well to stock market weakness. COVID lockdowns were an enormous black-swan windfall to tech profits that will be near-impossible to match, and government stimulus that supported valuations is also looking like a one-time thing.

Fed speakers in the past week, most notably Neel Kashkari, have taken specific effort to question the growing narrative that the central bank will reverse its tightening program. The more the stock market is under stress, the more the companies are under pressure to cut costs, the more layoffs they make, the weaker the economy gets, the dimmer the outlook gets, the more stocks go down. We’ve set the dominoes in motion, and they look hard to reverse.

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