Market Participants Appear to be Increasing their Employment Market Concerns

Click For an Audio Summary

Within a late summer edition, we shared how collective stock market participants were displaying concerns for the employment market via the payroll processors.

The payroll processors are quite sensitive to the health of the general employment market in light of their core business function being at the epicenter of servicing employed personnel.

In light of market participants’ obsession with pricing markets today, in light of what they see downstream on the economic timeline, we found the processors’ share pricing behaviors worth noting at that time.

In the front part of 2025, two long-standing payroll processors were clear stock market leaders.

Underlining their market-leading resilience, when the stock market went hard south in March and part of April, these processors stood out in that they barely went negative on their year-to-date performance at that time.

It was interesting to observe their resiliency in that collective market participants were clearly not concerned about the prospects for the downstream employment market, as they were extremely reluctant to trade their share prices lower. This, while large swaths of the stock market fell with ease.

Tariff implementations back then had collective participants concerned for general share prices, but not for the payroll processors.

It was as though they were signaling that the reindustrialization attempt with tariff implementations, or the on-shoring attempt as it is also referenced, would be a net positive for the general employment landscape, given time.

What a Shift It Has Been

We have continued to observe how market participants are trading these two well-established payroll processors’ shares and continue to be amazed at the tremendous turn in the pricing of their shares over recent months.

To go from tremendous resiliency in the face of notable downside market pricing to being tremendous underperformers within a few months is a rapid change in tone in how their shares are being priced by participants.

Click For Larger View:  https://schrts.co/VvVcXFJP

The above chart encompasses the S&P 500 (black line) along with our two long-standing payroll processors, Automatic Data Processing and Paychex corporations, which are the blue and red lines, respectively. (We are using both as tools for this edition. We are not advising a buy or a sell on either of these companies.)

Via the above visual, 2025 has depicted two completely different storylines for these two processors relative to their performance as compared against the benchmark S&P 500 index.

Approximately mid-chart, early June, we began to see a shift in what had been clear strength and outperformance by the two processors.

To the left of the mid-chart area, we see the blue and red lines consistently performing well north of the S&P 500. Post mid-June and moving to the current day, we see the exact opposite: consistent underperformance via their notable downtrends.

In totality for the two processors, market participants went from bidding them up to double-digit percentage performers to selling them off to consistent, double-digit negative performers, all within a few months.

Click For Larger View:  https://schrts.co/pBZhqYTI

To visually emphasize the tremendous turnaround from outperformance to then underperformance, the above chart is a baseline performance chart.

Our faint horizontal black line uses the S&P 500 as the baseline, which then allows for the two processors to clearly depict their level of performance relative to that of the S&P 500 index.

The blue line represents Automatic Data Processing, while the red line depicts Paychex.

If we use a bit of rounding, we can offer, via the above chart, that participants bid these up to a high of nearly 20% outperformance to that of the S&P 500 in the front part of 2025.

Toward the latter part of 2025, from mid-June to the current day, they have since sold these two off to 30% of underperformance. A massive turnaround in performance compared to that of the benchmark S&P 500.

In the lower right section of the chart, we inserted a small red arrow. This is the point when we last shared the payroll processors with a concern they were pointing toward employment market caution.

At that time we thought the turnaround in performance was notable. Since that time the chart depicts the downtrend in underperformance has continued further. This is a tremendous turn of pricing by collective market participants.

Collective participants seem to be offering increased concerns for the employment landscape via their pricing of these two processors. Importantly, said participants have been offering this change in pricing behavior since mid-June. Their messaging has continued more recently.

This will be an interesting relationship to observe by year-end. We will continue to monitor this market-based performance relationship as part of our toolbox, and if warranted, will share again if participants change this in any meaningful direction from here.

I wish you well….

Ken Reinhart Director, Market Research & Portfolio Analysis