The Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

The Market Update

Jobs Report Eases Fears—Though Cracks Are Beginning to Show

Markets responded positively to May’s jobs report, which showed 140,000 new jobs and a steady 4.2% unemployment rate. But beneath the headline numbers, warning signs are starting to emerge.

In this week’s Market Update:

• The labor force shrank by 625,000—raising concerns about discouraged workers
• Job gains were heavily concentrated in education and healthcare
• Retail and manufacturing sectors shed jobs
• Prior months were revised down by 95,000 jobs, hinting at a weaker trend

While job creation remains above key benchmarks, the uneven growth and softening labor participation suggest the economy may be entering a more fragile phase. Watch the full update for key takeaways and what to monitor in the months ahead.

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Video Summary: 

Adam Phillips 

I often tell our clients it's more important to focus on the news rather than the noise. What's an example of the noise? Last week, we saw the Senate begin the negotiations on the big, beautiful bill. Most were, we're watching very closely when President Trump and Elon Musk had a very public spat. That's noise that doesn't necessarily inform our thinking or our market outlook, although it is, it is interesting to watch, play out. 

Let's focus on what was more newsworthy last week. We are really focused on the data. Last week, we got an important piece of data, and that was the May jobs report. This is a report that comes out on the first Friday of every month, and last week, we saw that the job market actually added about 140,000 jobs in the month of May. 

This number came in better than expected, and so we saw the market respond favorably. Many were, were prepared for the worst. They were prepared for what we call this hard data, starting to show the impact of the tariffs and all of this trade uncertainty that we've seen in recent weeks. We didn't get that. 

We also saw the unemployment rate held steady at 4.2% for the third month in a row. So these were very positive takeaways from the report. However, there were. Some signs that there are some cracks beginning to form underneath the surface. And so that's what I want to focus on here today. It is why we don't necessarily think that we're out of the woods, but the odds of a recession have declined, materially declined since the beginning of April following the Liberation Day announcements. 

So what are some of those cracks? The first thing that we are keeping an eye on is the fact that the labor force participation. Actually declined by 2 cents of a percent. We saw 625,000 individuals exit the labor force. Now, generally speaking, this could be for any variety of reasons. One thing could be retirees who are simply retiring, and naturally exiting the labor force. 

That doesn't necessarily raise any alarms for us. But in this environment, we are very sensitive to the fact that. The demand for labor is softening, and we are seeing in other types of indicators the fact that this is a difficult hiring environment. We're not saying seeing layoffs surge just yet, but we are seeing employers that are less inclined to go out and hire in the face of this uncertainty, and so could the 625,000. 

Individuals who left the labor force over the last month, could that be driven by individuals who are simply becoming disillusioned and are tired of looking? So that is what we are on watch for in the coming months for some kind of confirmation. Another takeaway from this jobs report was the fact that it was really more about quantity than quality. 

And what I mean by that is the fact that the breadth of job gains, if we look at, across a number of sectors and industries, was actually the weakest since August, more than half of the job gains over the last month were focused in areas like education, healthcare. We actually saw retail and manufacturing jobs decline over the last month. 

So this is something to keep an eye on going forward. And then finally, we saw downward revisions of about 95,000 over the last two months. And all this means is that the initial strength that we saw in the jobs market actually, wasn't, wasn't strength that much strength at all. And these trends generally continue. 

And what that means, for us on this report, is that. If this trend continues, there will be 140,000 jobs that we saw added in the month of May. It could actually be revised down next month when we get the report for June. So these are all things that we need to keep an eye on. Again, we are not; the odds of recession have declined materially. 

We are all still. Watching every headline and update as it relates to trade and living in this period of uncertainty. But so far, the economy is hanging in there. So we're going to continue to watch this. We'll make sure that we report on it. As always, if you have any additional questions or want to learn about how this impacts your portfolio or financial plan, please don't hesitate to reach out to your financial advisor, and we'll look forward to seeing you next week.