Weekly Investment Update (09/10/2021)
U.S.’s Record Demand for Labor is Waiting for Supply to Catch Up
The demand for labor continues to increase across the U.S. Today, there are more jobs open than unemployed persons, with a 1.26 record-high ratio in July. In a similar vein, total job openings increased by 749,000 in July, pushing this figure to a new record high of 10.9 million. These trends are in contrast to some trends we are seeing on the supply side. The August total nonfarm payrolls missed expectations, increasing by 235,000 versus the Bloomberg consensus estimate of 733,000. Part of this relative weakness is attributed to the rise in COVID-19 cases in the U.S., as evidenced by a deceleration in payroll gains in industries most sensitive to COVID-19 trends, namely the leisure and hospitality industry. Other supply-side measures – such as the number of long-term unemployed workers, people not in the labor force but want a job, and the labor force participation rate – remain elevated versus February 2020 levels.
Looking ahead, we expect supply eventually to meet demand. The additional unemployment insurance benefits provided by the federal government officially expired for all U.S. citizens on Monday. The recent material rise in COVID-19 cases linked to the Delta variant appears to have peaked on a national level. Schools are now reopening for in-person learning across the country. Thousands of American workers are also set to return to their offices this fall, and wages are rising across all skill levels. These forces should help supply levels stay elevated and push demand higher.
From an investor perspective, the labor market is a vital area of the economy given the emphasis that the Fed puts on it and its direct impact on businesses. Current conditions suggest that the Fed may have enough confidence in the economic recovery to start the tapering of its asset purchase program by the end of the year. We also expect labor costs to become more of a focus in upcoming earnings seasons as the labor market further tightens. For now, we are not seeing wage pressure affect margins, but it is certainly something that we are monitoring.
Cryptocurrency Corrects After Large Price Gains
On Tuesday, prices across cryptocurrency markets tumbled as Bitcoin and the wider market saw a nearly 13% drop in global market capitalization, falling from around $2.4 trillion to $2.1 trillion. The correction occurred after weeks of steady gains. Bitcoin, the largest cryptocurrency by market capitalization, surpassed its $50,000 price mark once again, and Ethereum, the second largest cryptocurrency by market capitalization, inched closer to its all-time high. Despite positive news of Bitcoin becoming legal tender in El Salvador on Tuesday, cryptocurrency prices dropped.
There were a variety of reasons attributed to the broad market selloff on Tuesday, before a slight rebound on Wednesday. Profit taking, the Security and Exchange Commission’s (SEC) actions against Coinbase Global, and glitches in El Salvador’s Bitcoin rollout were all attributed to the fall in cryptocurrency markets. Bitcoin’s value has grown by 70% since late July, and investors likely took profits, sending the price down. When the price started to dip on Tuesday, it was exacerbated by over-leveraged positions sending the price even lower. Furthermore, investors have been stepping up bullish bets on other cryptocurrencies aside from Bitcoin in recent months and likely engaged in profit taking there as well. Cardano, for instance, the third biggest cryptocurrency by market capitalization, rose ~100% over the past month before taking a 20% fall on Tuesday.
Other negative headlines likely added to the correction as Coinbase Global, one of the world’s largest cryptocurrency exchanges by transaction volume, noted on Tuesday that the Securities and Exchange Commission had threatened to sue the cryptocurrency exchange if it launches a program that lets users earn interest by lending crypto assets. Additionally, glitches in the rollout of El Salvador’s adoption of bitcoin as a national currency could also be curtailing expectations among some traders.
Due to high levels of volatility and limited regulation, we continue to advise a cautious approach for those interested in investing in cryptocurrencies and other crypto related assets. We maintain no direct exposure to this asset class in Bessemer portfolios; however, Bessemer maintains a favorable outlook on the underlying blockchain technology. For more information, see (“A Brief Update on Bitcoin and Blockchain Technology”).
— Bessemer Investment Team
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