How Do You Spell Market-Beating Returns? J-O-B-S

by Andrew Zatlin August 08, 2023 3:00 pm ET

You've seen the headlines:

"Invest in gold!" "Invest in high-tech stocks!"

I've got a better idea...

One that can dramatically transform your portfolio and ramp up its performance.

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

How Do You Spell Market-Beating Returns? J-O-B-S

It's hard to beat the stock market. Nearly 80% of active fund managers fall short of major indexes like the S&P 500 and the Dow.

I've got an idea, though. And it's one nobody is sharing...

Invest in labor!

At first glance, this might seem confusing. But stick with me because I'm about to completely transform your portfolio...

'Mr. Labor,' At Your Service

When I say "invest in labor," I'm talking about using payroll data as a guide.

Payrolls aren't just another economic data point. This data is hugely important to the economy. In fact, when payrolls come out, trillions of dollars moves in the stock and bond markets.

In case you don't know, I'm considered "Mr. Labor." I regularly forecast things like jobless claims and payrolls. (By the way, I've gotten really good at it, too – I routinely beat the so-called "experts.")

How can payroll data be such a market mover?

The True Economic Driver

Simply put, payroll data reveals the relationship between job growth and the economy.

You see, we live in a consumer-driven economy. Seventy percent of our economy relies on consumer spending. And what drives this spending? You guessed it: jobs.

The more people who have jobs, the more people who are out there spending. And that's good for our economy. Unfortunately, the opposite is also true.

It may seem obvious, but a lot of investors and even financial analysts overlook this connection. And not only are payrolls a steady economic barometer...

They also advise how bullish (or bearish) you need to be as an investor.

A Stock Market Crystal Ball

To understand what I mean, take a look at this chart:

This shows jobless claims (the red line) and the S&P 500's performance (the black line) since the start of last year.

To demonstrate my point, I've made a slight – but critical – tweak to how this data is presented. I took the jobless claims data and inverted it. So when you see the red line go up, it actually means that jobless claims went down. That's important to understand.

With that in mind, look at how strongly correlated jobless claims are with the S&P 500's performance. Basically, as jobless claims fall (remember, this data is flipped on the chart), the market's performance rises. And vice versa.

And here's what's really fascinating. See the blue arrows?

Those are times where jobless claims either rose or fell just a few months before the stock market either soared or plummeted. In other words, jobless claims and payroll data can actually forecast what the market is going to do! How's that for a crystal ball?

But payroll data's power doesn't stop there...

Even More Powerful

We can use payroll data to invest in specific companies.

If a company, or even an entire sector, is hiring, that typically means earnings are on the rise. And that leads to higher stock prices.

We can even use payroll data to invest directly into the jobs market.

You see, there are a handful of companies (and even a few sectors) that rise and fall based largely on how many people are working. For example:

In America, part of everyone's taxes goes into the healthcare industry. The more people working, the more money that's flowing into this industry.
In high-tech, companies like Workday (WDAY) provide online tools to clients to help them manage things like benefits and payrolls. The stronger the payroll data, the more business Workday likely has.
Then there's Salesforce (CRM), a $200 billion software company. This business caters to salespeople. So if a company has more salesmen on staff, that's more licenses and more money going into Salesforce's pockets.
Finally, you can invest in staffing companies like Robert Half (RHI) or Manpower (MAN). When there's more demand for workers, there's more demand for staffing agencies like these.

Someone's on the Hot Seat

Bottom line: We can use job data to not only target specific opportunities, but actually predict when they're going to happen.

That's a powerful edge, made even more powerful by the fact that most experts don't think this way.

I've looked at the most recent payroll data and landed on a company I think is on the hot seat right now. Payrolls are slowing down, and I see a huge disconnect between its stock price and market expectations. And therein lies our profit opportunity.

Make sure you become a Moneyball "Pro" subscriber to get all the details.

In the meantime, we're in it to win it. Zatlin out.