Roughly half of all U.S. employees work for small businesses. What’s more, small businesses account for roughly half of net job creation.
So the fact that small businesses anticipate starting 2021 with three-quarters of the head count that existed at the start of 2020 should be alarming to investors. Yet market participants do not seem to be losing any sleep here in early June.
One might also think that the jobs conundrum, both in June 2020 as well as next year, would continue to wreak havoc on corporate profitability. Fewer people employed implies a reduction in the ability to consume.
When recessionary pressures hinder consumption, corporations typically charge less for products and services. And that leads to declining profit margins.
Stock prices used to be highly correlated with margins. For the time being, however, the relationship between profit margins and stocks has been severed. Near-limitless liquidity from the Federal Reserve seems to be the only factor in the minds and hearts of stock bubble participants.
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