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Companies Get Creative

Markets pulled back a little this week after the blowout jobs report last Friday.  With so much riding on the economy slowing, it came as a big surprise that so many jobs were added in January.  This caused many analysts to wonder if the Federal Reserve had more work to do to bring inflation under control.  And as if on cue, many of the sitting Board of Governors took to the media to reiterate the need for further rate hikes.  The pullback this week, while mild, was the largest among the stocks that have gained the most this year.  That is to say, stocks in the technology sector came under pressure this week.  While we don’t anticipate the strong jobs report as being the catalyst for a market downturn, ironic that this could even be the case, but expect the markets to continue to digest the economic data and react accordingly in the weeks ahead.

With all the layoffs that have been in the spotlight this year, one might expect the unemployment rate to be higher.  In fact, one would expect to see unemployment claims spike which is why it seems strange that neither is happening.  In fact, the labor market remains extraordinarily tight.  Here’s what’s going on.  Employment in professional and business services is 7.3% above February 2020 levels, while employment in leisure and hospitality is still 5.5% below its pre-pandemic peak.  While layoffs are occurring predominantly in the professional and business services, there remain some 11 million job openings in various parts of the economy most noticeably, health care, education, and leisure.  In a nutshell, we’re seeing some jobs come out of the business side of the economy, while simultaneously more jobs are being added to the understaffed, and underemployed parts of the economy.  You’re just not hearing much about the companies hiring since they tend to be small businesses and it wouldn’t be nearly as sensational.

As for company news, we had a few interesting tidbits this week.  AMC Entertainment announced it is rolling out an idea to shake up its revenue stream.  It is testing variable price movie theater tickets based on the location of the seat in its theaters.  Those seats at the very front and those reserved for disabled people will come at a discount, while the prime middle-row seats may require a premium.  I’m not sure this is going to get me to come back to the theater, but it is novel thinking.  In other news, Southwest Airlines outlined in a memo that it will reduce by half the amount of experience prospective pilots must have flying jets as part of its push to accelerate hiring this year.  Applicants will need to have 500 hours of flying time, instead of the prior requirement of 1,000 hours.  While this too is novel thinking, I’m not sure it will resonate with passengers (if they find out).  And finally, UnitedHealth has unveiled a new program for certain members that will allow them to receive rewards by using wearable devices and completing activities.  Members can receive up to $1,000 per year under the scheme if they meet daily activity goals, as well as track sleep and other health-related activities.  Pavlov would be proud.

Without belaboring the point, inflation remains an issue and will for some time.  Depending on which channel you choose to watch, the economy is either the best it has ever been or we’re deep in a recession and people are hurting.  This is a bit like Schrodinger’s cat, in that both are seemingly true simultaneously.  Here’s all I can say on the subject.  Inflation is falling but at a slow rate.  Given past inflation shocks, we can expect the return to normalcy to take on average 22 months.  We’re six months into this cycle.  At an average 0.1% to 0.2% decrease per month, we might expect inflation to normalize sometime in late 2024.  Until then, we will be in both the best of times and the worst of times.  It is getting better, albeit slowly.

In closing, I came across two new ETFs that might be of interest if not for their novel approach.  There’s that word again.  Do you think U.S. lawmakers have the inside track when it comes to the stock market?  There is some evidence this could be true.  Two new ETFs, tickers NANC and KRUZ, will allow investors to track moves made by politicians of the two political parties.  I would not recommend running out and purchasing these ETFs except as a novelty.  However, they aren’t as crazy as one might think.  NANC’s top three positions are Microsoft, Amazon, and Alphabet, while KRUZ’s top positions include Magellan Midstream Partners, Microsoft, and Energy Transfer.  Take heed that these ETFs can only purchase or sell positions after the politicians have made their move, so it is possible that due to the timing of disclosures and subsequent trades, any advantage may be lost.  Since these are brand new there is no track record, but so far, this week KRUZ is beating NANC by more than double.  They’re both down.  Now you know. 

Bruce J. Mason, MBA