Massive News for ALL Stock Market Investors!

[00:00:00] Speaker 1: We got some massive news for stock market investors as the monthly jobs report in the United States came in worse than expected. So in this video, I'm going to detail what was announced in the Bureau of Labor Statistics jobs report, and I'm going to connect it to the stock market and all the steps in between what it means for interest rates, the central bank, and specific stocks that you might own in your portfolio. I want to thank The Motley Fool for sponsoring this [00:00:29] Speaker 2: video. Visit fool.com slash parkev for the 10 best stocks to buy now. So let's start with the actual [00:00:36] Speaker 1: figures that were reported in the BLS report. If you're curious where to get these numbers, you could go to bls.gov where they report the monthly employment data. So total non-farm payroll employment was plus 57,000 in the month, which was in line with the average monthly change over the prior 12 months, but much lower than what we've seen over the previous three months. So this is a cool down, a significant cool down in the labor market in the United States. Over the previous few months, the jobs data had been incredibly positive, which was increasing the risks of fueling inflation. And that was going to cause the central bank to raise interest rates as the probability the stock market was pricing in a very high likelihood that the central bank would be raising interest rates at least one time in 2026. So this figure at plus 57,000 and a little bit later, we're going to see revisions to the prior few months jobs data makes it less likely that the central bank will raise interest rates in 2026. I'll talk a little bit more about that a little later as we complete the data that was released So employment in professional and business services continued to trend up adding 36,000 jobs. This is a recovery in that industry, which has added 172,000 jobs since the recent low in October of 2025. This is really great news because this is a category where artificial intelligence could be disrupting. So to see jobs growth in this category is significantly positive, offsetting some of the declines that's undoubtedly happening under the surface here with artificial intelligence, social assistance and healthcare has been has been two of the strongest categories. This is where the bulk of the jobs growth has came over the previous 12 months. And in the recent month, it continued but below where it had been in recent year. So social assistance added 25,000 jobs in June and healthcare added 22,000 jobs, but that was slower in terms of healthcare compared to the previous 12 months where the industry had been adding roughly 38,000 jobs per month. Now I've been talking about every month when this data comes out, how social assistance and healthcare when jobs are being added in those categories, and that's the primary growth driver in jobs. That's not indicative of a strong economy because healthcare is not that strongly correlated with the economy. When you go to seek out healthcare services, what's the primary reason you're going to seek out healthcare services? It's not connected to your job prospects, right? It's not because you just got a promotion. It's not because you just got your annual bonus. It's because you needed something related to your healthcare. Maybe you hurt yourself. Maybe you went for your regular checkup. Maybe you needed a tooth extraction. Whatever needed to be done, it was not connected to, it was not likely connected to your job prospects or your income prospects. It was something related to your healthcare needs. And so when the healthcare sector is growing, it's not evidence that the job market is strong or the economy is strong. It's just an indication that we have an aging population here in the United States with growing healthcare needs. And that's why there's so many jobs being added in this industry. And social assistance is actually the opposite of a strong economy. If you're adding more jobs and social assistance, that's indicative of more people needing social assistance, which is the opposite of an economy that's doing well. When an economy is doing well and thriving, you have fewer people that need social assistance because they're able to earn their subsistence needs themselves without needing government assistance. And so this has been the story here with the US economy, a lot of job growth from these two categories, which is not necessarily a sign that the US economy is strong. And then in a sign of significant headwind, the leisure and hospitality industry lost jobs in June, 61,000. This reflected weaker than usual seasonal hiring. And this is most likely due to companies hiring ahead of the FIFA World Cup and ahead of the holiday season. So the summer holiday, the summer season is typically when leisure and hospitality does need to be more than usual. And so businesses prepare for that in this industry by hiring earlier than usual. But overall, the leisure and hospitality industry has been slowing down considerably here in 2026. There's been fewer travelers coming into the United States due to, you know, when the United States implemented tariffs, a notable decline in travelers from Canada, a notable decline in travelers from other parts of the world where the United States placed tariffs on their countries. The United States is not popular with many, not just its allies, but of course, everyone else in the world. So you've had fewer travelers coming in. And then on top of that, you've had a consumer which has faced significantly higher costs of living. So they have less disposable income. People don't have as much money to go out to eat, to plan a vacation, to go out to a theme park, a concert, a movie. They've been spending less in those categories because they've had to spend more on rent, on health care, on transportation, on gas, on everything because the cost of everything has increased dramatically over the previous five, six, seven years without a subsequent increase in people's wages. So wages, and that's another thing we saw in this report, is that wages are increasing at a slower pace than inflation is increasing. So people are losing purchasing power. What you were able to buy after a 40 hour work week is less this year compared to what you were able to buy after a 40 hour work week last year. Even though nominally, your paycheck may have increased, but when you go out to spend that money, the price of everything that you're normally buying has increased by much more than what your paycheck has increased. So you're getting fewer things and services with your labor hours than you were able to get last year. And that situation has continued for several years now. So people are feeling the pain and they're not able to go out and do the things that they would like to do as often as they like to do. So not only was this month's job number lower than expected, but there was also revisions for the employment number for April and May. And this happens with every jobs report. Not only do you get the number for the month, but you also get updates for the previous months and sometimes those revisions are higher and sometimes the revisions are lower. In this case, the revisions were lower. So employment in April and May was a combined 74,000 jobs fewer than was previously reported. So not only lower jobs number for this month, but fewer jobs added in April and May. Overall, the takeaway from this jobs report is that the U.S. economy is not as strong as we thought it was when the report came out in May. And so there's fewer reasons for the central bank to increase interest rates. Inflation is not likely to be as big of a problem since the U.S. economy is not growing as robustly as we thought just one month ago. And so with fewer jobs being added, there's less competition between companies for workers. So they don't have to hire, they don't have to increase the wages that they're offering to attract workers. They can find workers because there's more workers available. They're not competing against other businesses that are looking to hire workers. And so that means inflation is not as big of a problem as we thought it was one month ago. And so the central bank is less likely to raise interest rates than they were just one month ago. And how that connects to the stock market is when interest rates are higher, there's increasing competition for investment dollars. If you can earn five or six percent by parking your money in a super safe money market account or a savings account, then you're less likely to be interested in using that money to buy stocks. So the competition, the opportunity cost of capital increases, and it works against stocks. It works to take money away from the stock market and goes into the markets like savings accounts, money market accounts, even government bonds become more attractive because they will have better interest rates compared to just one month ago. So this factor is more pronounced when you're looking at growth stocks versus value stocks. That's because the cash flow that's expected from growth stocks are more heavily weighted towards future years. And so when you have higher interest rates, those cash flows from future years are discounted by a larger number, which decreases their present value by a larger percentage than those of value stocks. So the most obvious comparison is if you're thinking about a company like Coca-Cola or McDonald's and you're comparing it to a company like Tesla. A lot of Tesla's valuation is based off of cash flow that the company is going to generate maybe 10 years in the future when they have more broadly available driverless car technology. The current cash flow from Tesla is likely declining as the large part of its business right now. It's based on EV sales and EV sales are unlikely to do incredibly well over these next few years. So that part of its business is declining. It's investing in driverless car technology, which will unlikely be readily available more broadly until at least five, probably 10 years later, over the next few years. Where it's generating meaningful cash flow for the business. Meanwhile, McDonald's and Coca-Cola are generating strong cash flows today. They're not waiting for something five or 10 years later to happen for them. They're generating those cash flows today. So higher interest rates brings down the valuation for Coca-Cola and Tesla alike. But the valuation for Tesla drops much more than the valuation for Coca-Cola because of the differences in timing of cash flow. And the opposite is also true. When interest rates are declining, it's positive for stocks like Coca-Cola and Tesla alike. However, it's less positive for Coca-Cola for the same reason I mentioned earlier, and it's more positive for Tesla. So the dynamic you'll see as the probability of an interest rate increase decreases, it'll be more positive for growth companies like Tesla, and it'll be less positive for value companies like Coca-Cola.