Dear Advisor,
We are in a Charles Dickens market.
It’s a tale of two markets written in the pages of labor
On one hand, a select few technology stocks drive the Nasdaq 100 and S&P 500 higher.
On the other hand, small and medium-sized businesses struggle to find growth.
The key measure
You see, large-cap technology companies are extremely lean.
Take Google (GOOGL) for instance. The search giant makes $1,45M per employee.
Facebook (FB) pulls in $1.61M per employee.
What about Target (TGT)?
Around $240,000.
The difference is mind blowing.
Yet, it helps us understand part of the growth problem in certain sectors.
The higher your revenue per employee, the more growth you get for each hire.
With tight labor markets at the high and low end, companies like Target struggle to keep up with demand.
Square’s (SQ) today illustrates the point beautifully.
The company saw insane growth year over year.
Guess what their revenue per employee is?
$2.4 million.
To be fair, this notion isn’t always true. For example, energy companies like EOG Resources make $3.45 million per employee. Their investments are instead spent on fixed assets.
Revenue per employee isn’t a magic bullet. It won’t help you pick out which companies are set to explode higher.
Instead, it gives you insight into the potential impact of a tight labor market on that particular company.
That’s why Friday’s payroll numbers are so important.
Everything we’re watching right now from inflation to corporate earnings is driven by Fed policy and labor markets.
We got the Fed last week.
This week is round two.
Unemployment has remained stubbornly high despite governors cutting benefits and companies offering back-to-work bonuses.
There isn’t any reason to believe this has changed.
Our hot take
Take a look at your portfolio holdings and run a quick analysis to see what the revenue per employee is for each asset.
Think about whether a tight labor market makes it difficult for them to grow.
Questions from your clients
- Which companies are set to grow in the next 6-12 months?
- How much could the Delta variant hurt my holdings?
- What can I expect for a return over the next few years?
- Is it time to rebalance my fixed asset to equity holdings ratio?
Monday, August 2
- ISM Manufacturing for July
- Square (SQ) reported EPS of $0.66 versus $0.30 and $4.68B vs $4.99B estimates.
- Earnings after the close: Mosaic (MOS), Take Two Interactive (TTWO).
Tuesday, August 3
- 3:30 p.m. – July vehicle sales
- Earnings: Alibaba (BABA), Clorox (CLX), ConocoPhillips (COP), Eli Lilly (LLY), Lyft (LYFT), Ralph Lauren (RL), Under Armour (UA).
Wednesday, August 4
- 9:45 a.m. – 10:00 a.m – ISM & Markit Services for July
- Earnings: CVS (CVS), Electronic Arts (EA), General Motors (GM), Roku (ROKU), Uber (UBER), Etsy (ETSY).
Thursday, August 5
- 8:30 a.m. – Weekly Initial Jobless Claims
- Earnings: Square (SQ), Beyond Meat (BYND), Carvana (CVNA), Moderna (MRNA), Virgin Galactic (SPCE), Wayfair (W).
Friday, August 6
- 8:30 AM – June Unemployment
- Earnings: Canopy Growth (CGC), Draftkings (DKNG), Norwegian Cruise Line Holdings (NCLH).