Reading the Economic Tea Leaves: What the Labor Market and Global Trends Mean for Your Money
- Feb 10
- 6 min read
Perspective Matters
KEY TAKEWAYS
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If you’ve been watching the news lately, you’ve probably heard conflicting signals about the economy. Some headlines warn of a coming recession; others celebrate a resilient job market. As is often the case, I think the truth is somewhere in the middle—and the details matter more than the headlines.
I want to walk you through some of the data we’re watching most closely—particularly what the labor market is telling us about recession risk in the next 12 to 18 months, and why longer-term trends in global stock markets should factor into how you think about your portfolio. My goal isn’t to make predictions. It’s to help you understand what’s happening so you can feel confident about the plan you have in place. The data and charts referenced throughout are sourced from J.P. Morgan Asset Management’s Guide to the Markets, 1Q 2026, as of December 31, 2025.
THE LABOR MARKET: COOLING, NOT CRACKING
When economists assess recession risk, the labor market is one of the first places they look. A healthy job market means people are earning, spending, and keeping the economy moving. A rapidly deteriorating one is usually a warning sign.
So, what does the data say? The short answer: the labor market is slowing down, but it’s not falling apart. As of November 2025, nonfarm payrolls added about 64,000 jobs, with the three-month moving average down to just 22,000—well below the hiring surges of 2021 and 2022. The unemployment rate has risen to 4.6% from a cycle low of about 3.4% in 2023, though that’s still below the 30-year average of 5.5%. Wage growth for everyday workers has settled at about 3.9%, slightly above its long-term average.
Source: BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S., as of 12/31/2025.
The JOLTS data (Job Openings and Labor Turnover Survey) adds more context. Job openings peaked at a record 12 million in March 2022 but have returned to about 7.7 million—essentially pre-pandemic levels. Hires have dropped to decade lows, and layoffs have risen slightly but have settled near their pre-COVID range. The red-hot labor market of 2021–2022 has cooled to something that looks more normal.
Credit markets reinforce this picture. Credit spreads—the extra yield investors demand for holding riskier corporate bonds—remain tight relative to long-term averages. When a recession is approaching, these spreads typically widen as bond investors get nervous. We’re not seeing that. The overall quality of the high-yield bond market has also improved since 2008, with fewer of the riskiest bonds in the mix, keeping default rates low.
The takeaway? I’d say this looks more like a labor market normalizing than one on the verge of collapse. A recession in the next 12 to 18 months isn’t impossible, but the data today doesn’t suggest to me that one is imminent.
A SHIFT IN GLOBAL MARKET LEADERSHIP
Now let’s turn to a longer-term trend that could meaningfully affect your portfolio: the relationship between U.S. and international stock markets.
For the past 15 years, U.S. stocks have dominated, with the S&P 500 delivering an annualized return of about 14.1%—well ahead of international developed markets (7.1%) and emerging markets (4.2%). That outperformance has made U.S. stocks relatively expensive and pushed America’s share of global stock market value to over 64%, up from about 30% in 1987.
But 2025 saw a notable reversal. After the U.S. outperformed nearly every region in 2024, the script flipped—almost every major international market outperformed the U.S. last year, with several posting returns in the 25–35% range. European and Japanese equities have actually outperformed the S&P 500 (excluding Nvidia) since the October 2022 market bottom. Historically, long stretches of U.S. dominance have been followed by periods where international markets catch up, especially when the U.S. dollar weakens. We may be in the early stages of such a shift.
Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. Guide to the Markets – U.S., as of 12/31/2025.
This reinforces a principle we come back to again and again: diversification matters. A globally diversified portfolio may not top the charts in any single year, but it’s designed to deliver reasonable returns over time while reducing the risk of being too concentrated in one area when the cycle turns.
WHY STAYING THE COURSE STILL WORKS
Here’s the part that I think matters more than any single data point. The U.S. economy and stock market share an important characteristic: they spend far more time growing than shrinking. Since the 1920s, economic expansions have lasted an average of 49 months, while recessions have averaged just 14. In the stock market, bull markets have averaged 70 months with a return of 221%, while bear markets have averaged 14 months with a decline of 39%.
Source: BEA, FactSet, NBER, Standard & Poor’s, J.P. Morgan Asset Management. Guide to the Markets – U.S., as of 12/31/2025.
Time is your most powerful tool as an investor. Looking at data from 1950 to 2025, stocks have returned as much as 52% and as little as negative 37% in any single year. But extend the window to 20-year rolling periods and stocks have never lost money—with $100,000 growing to over $908,000 on average. The catch is that you have to stay invested through the rough patches to capture those long-term returns.
That’s where planning makes all the difference. A sound financial plan anticipates that markets will decline—sometimes sharply. I believe the way to manage that risk isn’t to try to predict when the next downturn will happen. It’s to make sure you have enough money set aside in safe, liquid places to cover your spending needs for the next two to three years. That way, when (not if!) the market drops 20% or more, you’re not forced to sell at the worst possible time. You can ride it out and be positioned for the recovery that has historically followed every bear market.
At Prism, our mission is to empower you to pursue your dreams and passions while ensuring you feel well cared-for, informed, and secure. We don’t believe in reacting to every economic headline. We believe in building a plan that accounts for the inevitable twists and turns—and then standing beside you as you navigate them.
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Market and economic data referenced in this article are sourced from J.P. Morgan Asset Management’s Guide to the Markets – U.S., 1Q 2026, as of December 31, 2025. Charts are used with permission and credited to J.P. Morgan Asset Management.
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