Jobs Data Signals Soft Market: IPO FOMO and Fed Watch

**SPEAKER_1** (0:00)
Joining us now, David Krakauer, the Vice President of Portfolio Management at Mercer Advisors. David, great to have you on. Now, let's dive in first with this jobs data.
We had a significant miss of expectations. We ended up having a loss for the month of July. We had a guest on earlier in the show who said, the data is old, it's not reflecting what she is seeing in her hiring trends. But how are you looking at this report and has it in any way materially changed your outlook for the labor market?

**David Krakauer** (0:30)
The outlook for the labor market? Well, everything we look at is more in trends. When we see this report and we see what's actually been happening year to date in the labor market, we certainly see a trend here of softening without a doubt, and labor participation rate coming down as well, partially due to immigration, but there's some concerns there of, where are we going to be getting our growth from?
So I think it's just another data point to look at in regards to the big macro picture of are we going to be going more towards a potential stagflationary environment? What's going to be happening with GDP growth? I know the estimates still show positive growth for the year, but all of this adds into the bigger picture. So next week, we're going to be seeing retail sales. We saw a pretty soft number in June, and this is going to be really big as well next week when we think about what's the health of the consumer? What's the health of households out there? How does that add in to the whole picture of growth for the economy? But the other thing to keep in mind though, too, when we're thinking just about the equity markets, the equity markets want soft economic data because they want any reason for the Fed to potentially delay raising rates, and who knows really what's going to happen then now come September and thereafter.
So, that's why you see a nice little pop here today at least I think on this data. Just another reason for maybe the Fed to wait and pause a little bit.

**SPEAKER_3** (2:00)
Yeah, that drop in yield, certainly a favorable environment for equities today. Then David, how does this factor into portfolio construction? I mean, when you're thinking about the productivity gains, we're still seeing from even a softer labor market. I mean, ISM manufacturing, four-year high. I mentioned it earlier this morning and this afternoon. I sound like a broken record, Airbnb managing to do what it's doing with these AI agents. I mean, how does that factor in to the investment thesis?

**David Krakauer** (2:28)
Well, the fact remains is we've had about 300 companies, the S&P 500 already report earnings. Eighty-seven percent roughly have beat their earnings expectations.
We're seeing strong fundamentals. When we think about even some of the more idiosyncratic stories, we saw Palantir, we saw Adelastin, we saw some of these software companies also have big pops this week. The story from a few months ago where AI is going to come in and maybe cannibalize some of these other areas like software, the story for us remains the same. You want to stay diversified. There's going to be winners and losers in a lot of these spaces, even in the big tech space as well as when you go into some of these other sectors and sub industries. So stay diversified, but the overall fundamentals that we focused on, earnings growth, they're there. So until we see some real concerns there, we definitely are with the bullish side of the fence here.

**SPEAKER_1** (3:30)
And how much is all of the geopolitical noise playing into how you're looking at structuring portfolios right now? Because a few weeks ago, we had priced in peace many times, then we sort of abandoned that. Now we're back to a point where we're seemingly holding on to this concept of pricing in peace. How are you approaching all of those dynamics and the constant headlines around the geopolitical concerns?

**David Krakauer** (3:52)
Well, so first off, we're generally always globally diversified. We believe that's very important. There's opportunities in Europe, there's opportunities in Japan, in emerging markets. There are both cases not just in the US, but all around. And there's obviously different stories going on there too, when it comes not just to valuations, but other things more specific to their government's, you know, fiscal monetary policy.
So we stay globally diversified.
You know, when we think through, you know, about, you know, where we're at right now overall, and we're thinking about the investments that are going on here in the US.