This morning's JOLTS (Job Openings and Labor Turnover Survey) report from the Bureau of Labor Statistics reinforced some of the findings in the recent National Federation of Independent Business report. That report revealed that while the net share of small businesses that have bolstered staff loads in the past three months rose from 2% to 10%, the net share stating that job openings are not being filled jumped to 29% from 25% in July and 24% in June, with a record 48% stating there are "few" or "no" qualified applications for advertised job openings.
According to the JOLTS report, job openings rose to a record high in July of 5.75 million (vs. expectations for 5.3 million). While the unemployment rate has been falling (just dropped from 5.3% to 5.1%), which sounds good, the employment to population ratio is down to levels not seen in around 30 years! What this tells us is that we have plenty of companies with jobs they need to fill, but cannot find qualified applicants, while at the same time a historically high percentage of the population has given up looking for work.
Over the long run, this could be good news for companies like ITT Educational Services (ESI) and Capella Education (CPLA) as well as Strayer Education (STRA), which have been hit hard in recent years by the lack of wage returns on higher education and scrutiny from federal regulators. A recovering economy coupled with awareness of more and more job openings could push prospective students into taking the plunge. One to watch will be McGraw-Hill Education, which has transformed itself from "just" textbooks and instructional materials to digital learnings content like McGraw-Hill Connect that Versace uses as part of his graduate teaching.
The stock market, on the other hand, is showing higher correlations among stocks. According to Bespoke Investment Group, the net number of advancers on a daily basis minus the number of decliners in the S&P 500 was above or below 400 for nine trading days in a row as of Tuesday's close. According to Bespoke's research going back to 1990, there were only two periods in which there have been eight such days in a 12-trading-day period: late November/early December 2008 during the financial crisis, where there were five straight daily occurrences, and once during the October 2011 correction. Bulls will be pleased to know that the S&P 500's performance one year from those prior occurrences was just over 25% both times.
Recently, the markets appear to have significantly shifted from risk-off to risk-on, with Japanese stocks rising the most today (7.7%) since October 2008 as the yen falls below its 200-day moving average. Bond yields have been moving higher with this risk-on move coupled with the potential Fed rate rise, which is a headwind to REITs and utilities. This is evidenced by the recent pain felt by SPDR Dow Jones REIT (RWR) and Utilities Select Sector SPDR (XLU). Many are calling for a bottom in copper with the recent directional shift of Freeport-McMoRan (FCX), up over 10% in the past five trading days, which serves as a proxy for copper. But today's continual slide down for the S&P 500 has us remaining cautious about the market in general.
Last week, Investors Intelligence poll showed the bull share of the market had fallen to 25.7% from 27.8%, while the bear camp grew to 27.9% from 26.8%. We now have more bears than bulls in this survey for the first time since October 2011, which can again be a positive sign for the bulls. However, if you think the Fed may raise rates later this month, we think it best to keep some cash on the sidelines, as historically the market takes a bit to digest a rate hike, with a selloff likely to occur in the immediate aftermath, giving investors a better entry point. At least a few more weeks of patience may be just what the doctor ordered.