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Investing.com - Stocks floating at near record highs are reflective of wider optimism that a labor market slowdown could be only temporary, according to analysts at Goldman Sachs.
Despite a series of indicators that point to a materially weakening American jobs picture, and a possible easing in overall economic activity, stocks have continued to hover near all-time highs, the analysts said in a note to clients.
Following a slump in April fueled by the unveiling of President Donald Trump’s aggressive "reciprocal" tariffs, the benchmark S&P 500 has rallied by 32% and has notched 21 new record peaks -- the highest frequency since 2021. The blue-chip Dow Jones Industrial Average and tech-heavy Nasdaq Composite have recently logged their own fresh record levels as well.
Still, many investors have raised concerns about the apparent divergence between the frothy stock prices and the soft labor data, the analysts led by David Kostin flagged.
"Equities appear to be looking through the temporary economic slowdown and pricing reacceleration in 2026," they said, adding that a cooling labor picture has "open[ed] the door" for Federal Reserve interest rate cuts this week. There is now a roughly 95% probability that borrowing costs are lowered by 25 basis points, as well as about a 5% chance of a deeper half-point drawdown, according to CME’s FedWatch Tool.
The faltering job market may also prove to be a tailwind to corporate profits by helping ease wage growth, the analysts suggested. They estimated that a 100-basis point change in labor cost increases would impact S&P earnings per share by 0.7%, all else being equal.
Meanwhile, labor-intensive companies with high exposure to artificial intelligence and low margins should see the largest possible per-share income upside, the analysts said. Some of these names include Accenture, Aon, Brown & Brown, Dollar Tree, EPAM Systems, Marsh & McLennan, and News Corp.