The July Jobs Report, Congress at a Stalemate, and Trade Tensions | ETF Trends

By Marc Odo, CFA®, CAIA®, CIPM®, CFP®, Swan Global Investments

The U.S Bureau of Labor Statistics released the July jobs report the first week of August, highlighting that the U.S. added 1.8 million jobs in July, a small step forward for a country that’s still down 12.9 million jobs during the pandemic.

July marked the third straight month of improvement after the COVID-19 lockdown that decimated the labor market, and the job gains have even exceeded economists’ expectations. However, it is worth noting that July’s “increase” was significantly below the 4.8 million jobs added in June. And while the unemployment rate fell to 10.2%, it remains above the Great Recession high of 10% that was reached in October 2009.

It is certainly positive news that July’s payrolls and unemployment reports came in better than expected.  However, there may be some undesirable consequences from what seems to be positive news. The better-than-expected jobs report may allow policymakers in Washington to approach negotiations for another round of stimulus checks lackadaisically because some may perceive that there is no immediate threat to the economy. In our view, this is problematic as we believe the sharp market recovery has been driven entirely by government spending and Fed intervention.

The reality is that lawmakers are still struggling to negotiate another COVID-19 relief package, and according to reports, negotiations are still far away. With the $600 weekly unemployment stipend expiring at the end of last month and COVID-19 cases continuing to spike across the country, Congress’ recess could not have come at a worse time.

To make matters worse, trade antagonism is driving headlines as of late and there have been no positive signs of the situation improving.

While there is large support for more aggressive stances with China, the singling out of the Canadian aluminum trade is hard to defend.  We just signed the United States Mexico Canada Agreement on July 1 – our allies will assume the U.S. is negotiating in bad faith if we prove that we can’t stick to deals made a month ago.

As uncertainty persists surrounding the pandemic relief package, trade tensions and the upcoming election, investors would not be wise to try to “time the markets.” What this pandemic has shown us is that the world is unpredictable and black swan events can impact the markets quickly and drastically. Investors should hope for the best and prepare for the worst.

So how can you protect your portfolio from the unknown? The answer is simple: seek out alternative solutions that effectively manage risk while also addressing your income needs. At Swan Global Investments, our philosophy is to remain always invested in the market through low-cost equity ETFs and always hedged through options strategies to help investors navigate and capitalize on bear markets and black swan events.

Marc Odo, CFA®, CAIA®, CIPM®, CFP, is the Client Portfolio Manager at Swan Global Investments, a participant in the ETF Strategist Channel.