Five for Friday
October 10, 2025
Selloffs, Momentum, Job Growth, Automation, and This Day in History
1. Selloffs
As consternation builds about a potential AI bubble, it seems likely that the “popping” talk will be loud the next time the market stumbles. We should remember two things when this happens: 1) There are “healthy” selloffs: a market consolidating recent gains, resetting too-euphoric sentiment, and allowing fundamentals to keep pace with prices; and 2) the late 1990s—the most common comparison for today’s Tech-driven bull market—saw plenty of selloffs that didn’t come close to ending the bull market. For instance, the Nasdaq saw drawdowns of -14% in 1996, -18% in 1997, -23% in 1998, and -12% in 1999; the S&P 500 similarly had double-digit selloffs in 1997, 1998, and 1999. The AI trade may become a bubble but be wary of those who utilize minor stumbles to holler that the sky is falling.
2. Momentum
Per our partners at Strategas (a Baird company) this week marked 6 months (125 trading days) off the April 8 stock market low. To the right is a list of every stock market drawdown of -15% or worse since 1950, the market’s 125-day return off each of those lows, and how the market did over the following 3- and 6-month windows. As Strategas concluded, strong forward performance tended to continue +3 and +6 months ahead. The only negative return was in the +65 days after the first 6-months off the 2011 low. In markets, momentum tends to beget momentum; nowhere is that clearer than here.
3. Jobs
In lieu of new labor market data (due to the government shutdown), it’s worth resurfacing a takeaway from our Labor Day Labor Market update. Recent (non-gov’t) payroll growth in the U.S. has been highly concentrated in 1) Healthcare, buoyed by an aging population and a less economically sensitive demand profile, and 2) Leisure, fueled by solid consumer balance sheets and the post-Covid “experiences” boom. In fact, healthcare/social assistance and leisure/hospitality accounted for 80% of overall job growth in the last year. Softness in both information and manufacturing, meanwhile, bears watching given both sectors’ proximity to key economic themes (AI proliferation and U.S. reindustrialization—more on that below). Ultimately, a narrower job market means that opportunity is less abundant than a 4.3% unemployment rate might imply. The Federal Reserve should take note.
4. Automation
An interesting working paper from the San Francisco Fed links higher trade policy uncertainty in recent years with efforts to onshore production and usage of automation / robotics to mitigate cost. Worth the read, but the conclusion sums things up well: “when trade policy becomes more uncertain, firms in industries that are more exposed to international trade reshore production to a greater extent and automate more than those that are less exposed. This boosts labor productivity but results in little change in employment relative to firms in less exposed industries, likely because automation has both job-creating and job-displacing effects.”
5. On this day
17 years ago, also a Friday, the stock market concluded (what is still) its worst calendar week since the Great Depression. The S&P 500 fell 18.1% on the week – and was down as much as 24% intraday on October 10 before rallying into the close. The next week, Warren Buffett authored his now-famous op-ed in the New York Times. Perhaps less timely today than it was six month ago, but worth bookmarking for the next inevitable crisis of confidence and market selloff.
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