Korean securities firms have assessed that the slowdown in U.S. employment is not a valid reason for declines in artificial intelligence (AI) and technology stocks. Several factors are cited as reasons why even the market itself is ignoring weak employment data, including recent corporate investment patterns, earnings outlooks, and investors' resilience. On the contrary, if concerns over U.S. employment do lead to a drop in technology stocks, some believe this would present a good buying opportunity.
Kim Sunghwan, a researcher at Shinhan Investment Corp., questioned in a global equity strategy report released on September 10, "Is weak employment really a sign of a U.S. stock market and AI earnings recession?" He continued, "The weak employment figures for August and the downward revision of the annual employment benchmark seem to be interpreted in the market mainly as a risk of recession. The prevailing view is that if weak employment leads to an economic and earnings downturn while stock prices are high, a hit to the U.S. stock market is inevitable." However, he added, "As a U.S. strategy analyst, I find it difficult to agree with this narrative, and stock prices are also ignoring the weak employment narrative."
Despite the release of an employment report showing that the annual increase in non-farm jobs has effectively been cut in half, all three major stock indexes on the New York Stock Exchange closed at record highs on September 9 (local time). Kim cited three main reasons why the U.S. stock market is disregarding weak employment.
The first reason is corporate investment patterns. Kim explained, "Looking at this year's investment patterns, a decline in employment does not necessarily mean a decline in corporate profits. For example, Microsoft laid off 15,000 employees this year alone, but the funds saved have been redirected into AI capital expenditures (CAPEX)." He noted that while large-scale layoffs at consumer goods companies are mainly a cyclical response to margin squeezes, layoffs in the IT sector can be seen as a reallocation of resources. He also pointed out, "This concentrated AI CAPEX contributed to 75% of U.S. GDP growth in the first half of the year."
The second reason is that earnings forecasts have actually strengthened since employment data worsened in May. Kim said, "Since June, the S&P 500 earnings revision ratio has rebounded sharply and is now approaching 30%. Earnings per share (EPS) forecasts for 2025 and 2026 have also started to be revised upward. This is due to second-quarter earnings surprises." He analyzed that this is not so much because of a strong economy, but rather because consensus estimates were already revised downward in April and May, leaving earnings forecasts undervalued. He noted, "If employment and earnings move independently, weak employment is unlikely to be a reason for stock price declines."
The final reason is that market participants may have developed resilience to recession narratives. Kim pointed out that when recession risks surfaced in July last year and March this year, the prevailing logic was that if employment and consumption slumped, big tech earnings would deteriorate, inevitably halting AI CAPEX. However, stock prices and earnings moved in the opposite direction, which he cited as the reason for this resilience. He explained that repeated scenarios where selling out of recession fears ends up as an opportunity cost have made investors more resistant to such narratives.
Accordingly, Kim emphasized, "We must consider that AI CAPEX, which is driving industry conditions, is structural rather than cyclical, and that recent improvements in corporate earnings forecasts are appearing broadly across all sectors." He concluded, "The current level of employment slowdown may be a reason to sell off old economy stocks, but it is not sufficient grounds for declines in AI and technology stocks. If employment concerns do weigh on technology stocks in the future, it would present a good buying opportunity."
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