US markets are down sharply this morning with the Dow, Nasdaq and S&P 500 all off by at least -1.4% and off by triple digits, and this does come on the heels of the February US jobs report, which saw non-foreign payrolls lose 92,000 jobs.
Meanwhile, the unemployment rate in the US rising to 4.4%.
Now markets are facing uncertainty over the conflict in the Middle East, which is now marking day seven.
Saw oil rally and crude right now.
Crude oil is hitting a 23 month high.
Gas prices are also jumping 27 cents in one week, and this is expected to weigh on inflation figures.
Well joining me on this Friday morning is Brian Jacobsen, chief economist for Annex Wealth Management.
Brian, good morning.
Thank you so much for joining us.
So a lot to get through.
So what do you make of the jobs report and what does this mean for the economy?
Yeah, thank you for having me.
There's really no good way to sugarcoat the report.
It was bad, right, in terms of the headline drop of 92,000.
You also had the back month revisions of about 69,000 lower.
Now we could of course dismiss this as being like pre-Iran, the conflict there, but we've been kind of having to do that every single month with every single report for like the last year, saying that, oh well, this 1 may not, it isn't.
Reflective of what's to happen going ahead because so much has changed since the last report.
I think that though we do have to put into some context, the weather at the end of January was incredibly cold and that extended throughout February, and that can distort these labor market reports.
But even after accounting for some of these weather effects, it does look like the labor market has lost quite a bit of momentum.
And speaking of which, as you mentioned, we have been hearing from major publicly traded companies about layoffs.
So last week Block announcing layoffs this week, Morgan Stanley and Oracle making their job cuts public.
So in a nutshell, what is behind these moves?
I think that each one is a little different.
When I look at what's happened with Block, you can see how they, I think, almost tripled their workforce coming out of the pandemic, so they probably just overhired, and some of it could be that those particular positions could be replaced by like AI agents.
When it comes to other companies like Morgan Stanley, maybe they're finding some efficiencies from automation.
So I think that you are beginning to see a little bit more in earnest how artificial intelligence can be displacing some people's roles.
However, I think we're also seeing how it can also augment or help other people.
Become more productive because we did see that the average weekly payrolls, the wage that was paid, actually increased.
So we might have this situation where it's no hire, no fire, but at least wages seem to be growing pretty decently.
Yes, and I do want to get your take on what this means for the broader market.
So we have been seeing triple digit moves for the major equity averages this weekend in New York morning trade.
We are looking at red across the board for the major averages.
What do you make of the reaction that we're seeing right now, and we've been hearing about the halo trade that is heavy asset low obsolescence.
So what do you make of what we're seeing and do you expect it to reverse anytime soon?
Yeah, I think that whether and when it reverses will depend upon regime change effectively in Iran.
So if you know when that's going to happen, then you probably know when the bottom is going to be found in the markets.
Until then, it's probably going to be a continued slide, but in a very choppy way.
In terms of the hallow tree trade, as far as The heavy asset low obsolescence, I think it's a good acronym, but I think that it really is maybe a little bit too blunt of a tool to use for finding investment opportunities because there are plenty of heavy asset companies out there that will likely benefit from artificial intelligence or perhaps find new competitors from robotics and automation.
Low obsolescence that's in the eye of the beholder as far as how many jobs and which specific ones will be destroyed and which ones will be created, so it's a great acronym, but I'm not sure it's a wonderful guide to finding investment opportunities.
And Brian, of course, one thing that we can't forget is that 2026 is a midterm year and we saw the primaries kick off earlier this week.
So Trump's agenda is still under pressure even with Republican congressional control.
So do you see any market impact from the DHS partial government shutdown, and what are the implications here the longer that it continues?
Well, the travel industry is struggling with now higher oil prices, and plus it is possible that it could struggle as far as with the partial shutdown of the government with DHS, especially the way that that might affect TSA and just transportation in general.
So I think that it is really important.
And it is likely to be one of these things where it's a small effect, but it can grow with time and then it gets amplified with these higher fuel prices.
Plus, let's face it, a lot of people who are thinking about traveling are having second thoughts about it just because of security and safety reasons.
And finally, before I let you go, I do want to get your take on two sectors that have been seeing plenty of volatility this year, and that is software as well as private credit.
So what do you make of these two areas and how concerned are you?
Yeah, they really are intertwined.
A lot of the problems in private credit seem to be coming from fears about the degradation of profitability of some of these software companies, especially software as a service, and I think that what we're seeing in the equity market are people throwing the proverbial baby out with the bathwater, where it's the indiscriminate selling, not really thinking about whether or not.
Companies have some sort of edge, some proprietary data that is perhaps going to be beneficial and give them some more of that staying power.
Also, are they going to be actually more profitable because if they can operate with current revenues but with a lower headcount, that should accrue to the bottom line.
So I think some of the fears are somewhat overblown, but these are two things that are very intertwined.
OK, Brian, well, we will have to leave it there for today, so thank you so much for joining us today and thank you so much for weighing in on the jobs report as well as the conflict in the Middle East.
