It’s an unusual time for the financial markets, to say the least. Sometimes good news for the economy and American middle class is received well among stock traders; other times, it’s the last thing they want to hear. However, this is the inevitable result of a central bank’s data sensitivity and laser-like focus on getting inflation down to 2%.
As counterintuitive as all of this may seem, it’s the only logical explanation for the illogical inverse correlation between job openings and market sentiment witnessed on Tuesday. Perhaps the madness of the crowds ought to be celebrated, as some perfectly good stocks are now imperfectly priced.
JOLTS report jolts the market
Here’s the good news: it seems jobs are relatively plentiful. Tuesday’s Job Opening and Labor Turnover Survey (JOLTS) report revealed 9.6 million jobs available in the U.S. at the end of August, versus 8.92 million at the end of July. Furthermore, there were 5.9 million hires in August, compared to 5.8 million in July; meanwhile, the quits rate was unchanged from July’s reading of 2.3%, the lowest U.S. quits rate since January 2021.
Logic would dictate that these are positive developments. However, investors must leave logic at the door during a time when central-bank policy is at least as impactful as corporate earnings, if not more so. With the September jobs report due to be released on Friday — and with the Federal Reserve having hinted at a higher-for-longer interest-rate policy at August’s FOMC meeting — the last thing stock traders wanted to see was an upturn in job openings.
Fed Chairman Jerome Powell has already warned, “Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response.”
That evidence showed up on Tuesday, and financial traders fear that Friday’s labor-market data could reinforce the Fed’s resolve to keep interest rates elevated. The fear is not only palpable, but measurable: the VIX volatility index zoomed above 20 while the needle on CNN’s Fear and Greed gauge moved into “Extreme Fear” territory.
It doesn’t take an Oxford economist to connect the dots here, but nonetheless, Oxford Economics’ lead U.S. economist Nancy Vanden Houten observed that “labor market conditions remain tight” while also offering some solace, as the “Fed won’t make policy decisions based on one JOLTS report.” Still, the bond and stock markets responded to the JOLTS data with extreme trepidation; the 10-year Treasury yield jumped to 4.8%, while the major stock-market indexes slid 1.5% to 2% on Tuesday.
Embrace the volatility… if you dare
At times like this, I sometimes ask myself, “What would Warren Buffett do?” If you prefer, you could replace Buffett with Charlie Munger, Benjamin Graham, Peter Lynch or any famous value-focused investor of your choosing.
I can’t read the Oracle of Omaha’s mind, but I’m fairly certain that Buffett won’t lose any sleep over the JOLTS report. For one thing, the VIX is nothing more than the S&P 500 derivatives market’s prediction of future volatility; it’s not a guarantee that large-cap stocks will actually be volatile. Sure, it’s worthwhile to keep the VIX on your screen (or one of your screens, if you’re a professional trader), but it’s certainly shouldn’t be viewed as the be-all, end-all for long-term stock investors.
Moreover, I sense that Buffett enjoys these blood-in-the-streets moments. For most retail investors, the toughest part of buying low and selling high is the “buying low” part, although selling high isn’t as emotionally easy as it sounds. Buffett has mastered this and has a mountain of money to show for it.
If anything, aspiring Buffett imitators should be buying, not selling, when CNN’s gauge signals “Extreme Fear.” Personally, I’m relishing the opportunities in low-earnings-multiple names like Dollar General (NYSE:DG), Target (NYSE:TGT), Charles Schwab (NYSE:SCHW), NextEra Energy (NYSE:NEE), and PayPal (NASDAQ:PYPL), all of whose shares are currently trading near their respective 52-week lows.
Embracing fear is easier said than done, but this is what true contrarians do. As I see it, the U.S. government can’t afford to service its debt at high interest rates for too much longer. Additionally, as cynical as I may be, I don’t believe the Fed is interested in letting the stock market collapse. Therefore, I encourage long-term stock investors to take a Buffett-like approach and view the rise in job openings with the opportunity to snap up some great bargains as a win-win scenario.
