On the first Friday of every month, the U.S. Bureau of Labor Statistics releases a monthly Employment Situation Report that details labor market indicators like unemployment rate, job creation, hours worked, wages earned, and quit rate. The stock market reacts very quickly to this report as it is one of the best indicators of the health of the economy, sometimes dropping or spiking depending on how unexpectedly hot or cold the job market is. 

This is, in part, because employment and wage growth drive our consumption-based economy and are crucial for corporate margins, earnings, and market valuation. A strong job market, represented by low unemployment, high job creation, and rising wages indicates a strong economy. The opposite can be said for a weak job market. 

Meanwhile, the Federal Reserve (Fed) considers labor market data in setting interest rates, alongside other important factors like inflation. A too-strong job market might nudge the Fed to raise interest rates to keep inflation at bay, while a too-weak job market might nudge the Fed to lower interest rates to spark economic growth. 

The immediate impact of the Employment Situation Report’s release on the market is variable as investors wrestle with competing priorities: corporate earnings vs. interest rates. Investors tend to like rate cuts because it brings down the cost of borrowing, which they view as positive for boosting the economy and supporting a bullish stock market. However, investors also like high corporate earnings and the subsequent rise in valuation and stock price.

Of course, there are always other factors at play aside from one monthly jobs report that impact investor behavior, and it’s not simply the numbers they’re reacting to as much as they are reacting to whether or not their expectations of the numbers were correct. 

Two examples illustrate how differently the stock market can react to a weak job market.

When unemployment spiked significantly in March 2020 because of the COVID-19 pandemic, the stock market did not drop significantly in the immediate aftermath of the report’s release.¹ This is because investors expected a rise in unemployment and had already acted accordingly with their investments.

However, when the July 2024 monthly report was released to reveal worse than expected job data, the market immediately plummeted. By the end of the trading day on Monday, August 5, the Dow Jones had fallen -2.6%, the S&P 500 dropped -3%, and the NASDAQ fell -3.4%.² The S&P 500 hadn’t seen a drop so severe in almost two years. Investors were taken by surprise.

In an effort to help manage market volatility on both tails, like what we sometimes see in response to monthly jobs reports, TrueShares created the Quarterly Bull Hedge ETF (QBUL) and the Quarterly Bear Hedge ETF (QBER). 

These two hedge ETFs can be used individually or in tandem as accessories to an existing portfolio. They offer risk-averse investors unique equity gains potential in high-volatility environments by seeking to capture 20-40% of large-cap equity market swings in both directions, smoothing portfolio volatility in the process.

The Employment Situation Report comes out every month. It is highly anticipated by investors because it is such a strong indicator of the health of the economy. Though its release is predictable, the results and investor reactions are not. That’s why adding volatility management to a portfolio may help smooth the bumps we may see after the first Friday of every month.

1. https://www.schwab.com/learn/story/why-jobs-report-matters-to-investors
2. https://www.barrons.com/livecoverage/stock-market-today-080524

The TrueShares Quarterly Bull Hedge ETF and TrueShares Quarterly Bear ETF are also subject to the following risks:

• Options Risk. Buying and selling (writing) options are speculative activities and entail greater investment risks. As the buyer of a call option, the Funds risk losing the entire premium invested in the option if the Funds do not exercise the option.
• Derivatives Risk. Derivatives may be more sensitive to changes in economic or market conditions than other types of investments.
• Active Management Risk. The adviser’s judgments about an investment may prove to be incorrect or fail to have the intended results, which could adversely impact the Fund’s performance. QBUL – The adviser’s tail risk strategy may not fully protect the Fund from declines in the market and will not allow the Fund to fully participate in market upside. When the adviser selects out-of-the money call options, the Fund will not participate in equity market gains until they exceed the strike price of the call option. Lower interest rates or higher call option prices will tend to increase the cost of mitigating the risk posed by a decline in U.S. large capitalization equity markets. QBER – The adviser’s tail risk strategy is not designed for upside participation in the markets and will underperform in rising equity markets relative to traditional long-only equity strategies. While the adviser’s strategy is designed to benefit from meaningful declines in the domestic large cap equity market, the Fund will not fully benefit from any given downswing in the market. When the adviser selects out-of-the money put options, the Fund will not participate in equity market declines until they exceed the strike price of the put option. Lower interest rates or higher put option prices will tend to increase the cost of attempting to benefit from meaningful declines in the U.S. large capitalization equity markets.
• Equity Market Risk. Common stocks are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in and perceptions of their issuers change based on various and unpredictable factors including but not limited to expectations regarding government, economic, monetary and fiscal policies; inflation and interest rates; economic expansion or contraction; and global or regional political, economic and banking crises.
• Fixed Income Securities Risk. When the Fund invests in fixed income securities, the value of your investment in the Fund will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities owned by the Fund. In general, the market price of fixed income securities with longer maturities will increase or decrease more in response to changes in interest rates than shorter-term securities.
• FLEX Options Risk. The Fund may invest in FLEX Options issued and guaranteed for settlement by the OCC. The Fund bears the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts. Additionally, FLEX Options may become illiquid, and in such cases, the Fund may have difficulty closing out certain FLEX Options positionsat desired times and prices.

NOT FDIC INSURED — NO BANK GUARANTEE — MAY LOSE VALUE

The funds are new with limited operating history.