By day count February is the shortest month of the year, however it sure did not feel that way with constant headlines out of Washington. Between tariff talk, federal layoffs, negotiating wartime agreements, and earnings seasons there was a lot to digest during the month. We have thus far continued to see strong corporate earnings and economic data but there is an inherent delay as unemployment and corporate spending are lagging indicators. With this in mind, we believe the market is anxiously waiting upcoming economic data releases to get a better understanding of both how and to what degree federal cuts, primarily as a result of the Department of Government Efficiency (DOGE), will have on the economy.
While much has been written about the impacts we thought that it would be helpful to put in perspective the total US employment picture and compare with governmental and federal contractors. Total employment in the United States is 160 million, with 7 million unemployed. Also, about 5 million people change jobs every month. In that context, the recent estimates of 300,000 federal jobs lost is not much. However, studies show that for every federal employee, there are two contractors which would imply layoffs potentially closer to 1 million people. We believe that this helps frame the current discussion as the DOGE actions are getting much of the attention. At some point we believe this will transition to a broader discussion to see if recent policy uncertainty has weighed on capex spending and hiring decisions across the broader job market. As we discussed in our 2025 Year Outlook, we continue to believe that resetting expectations will be the theme of this year which will bring continued volatility which is not a bad thing. Understanding that volatility and selloffs will happen during an investment period is crucial for long-term investors. Market fluctuations are a natural part of investing, and history has shown that staying disciplined through periods of uncertainty can lead to strong returns over time.
Source: Apollo – Downside Risks Intensifying (Apollo)
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