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Worrying Jobs Data Favors This Forgotten Sector
Worrying Jobs Data Favors This Forgotten Sector
BY MICHAEL SALVATORE, EDITOR, TRADESMITH DAILY
In This Digest:
- Two consumer warning signs spell opportunity for this sector
- The Big Money is fleeing tech
- A rare “convergence” signal for the world’s biggest stock
A mixed bag of economic data dropped this week…
The U.S. economy added 130,000 jobs last month. And the unemployment rate fell to 4.3%.
That’s good news – especially considering dismal consensus calls for just 55,000 new jobs added.
But what’s not good at all are the revisions to last year’s jobs data.
The level of hiring in 2025 was about one-third of what the government estimated – with 181,000 jobs added instead of the previously reported 584,000.
That’s only about one-tenth of the 1.46 million jobs added in 2024.
So while hiring is picking up now… it’s picking up from a rotten rate of jobs growth last year.
That might explain the crack we’re seeing in consumer credit.
The share of consumer loans in default is at 4.8% and rising – the highest level since 2017. Federal Reserve researchers linked this rise to two key areas: mortgages and student loans.
Here at TradeSmith, we like to connect the dots just as much as the next analyst. But our edge isn’t interpreting the news headlines. It’s finding actionable ideas backed by our world-class data analytics and software tools.
Our intuition – looking at anemic job growth and rising consumer credit defaults – leads us to a certain type of stock, which we’ll detail shortly.
But we don’t act on that intuition if the data and our tools don’t back it up.
Luckily, this is one of the times when the two are in sync.
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“Needs” stocks are outperforming “wants” stocks…
As we wrote about earlier this week, the tech sector – represented by the SPDR S&P 500 Technology Sector ETF (XLK) – is down in 2026. As of yesterday’s close, it’s lost 0.6% so far this year.
That’s noteworthy, considering it’s been a market leader for the past three years.
By contrast, the SPDR ETF for Energy (XLE) is up 20%… Materials (XLB) is up 16%… and Consumer Staples (XLP) is up 13.8%.
In one month, each of these sectors has posted gains that handily beat the S&P 500’s average annual return of 10.3% over the last 30 years.
And if we’re looking for a dot to connect with troubling consumer data, then the Consumer Staples sector is worth watching closely.
Consumer Staples stocks are “needs” stocks. They’re the companies that people are less likely to cut back on in tough times.
Think discount megastores like Walmart (WMT) and Costco (COST)… household products companies Procter & Gamble (PG)and Colgate-Palmolive (CL)… tobacco giant Philip Morris (PM)…and soft drink maker Coca-Cola (KO).
If you lost your job last year and are struggling to make your student loan or mortgage payment, you’re not going to cut back on buying toothpaste and dish soap at Walmart.
You’ll pare back instead on nonessential “wants” like a new TV, expensive lattes, or your annual vacation. That’s bad news for companies in the Consumer Discretionary ETF (XLY) like Amazon (AMZN), Starbucks (SBUX), vacation planning company Booking Holdings (BKNG), and cruise-line operator Royal Caribbean (RCL).
And the Consumer Discretionary ETF is barely treading water in 2026. It’s down 0.6% year to date. And it’s down more than 5% in the last month.
In short, needs are outperforming wants.
It takes us back to the K-shaped economy – the idea that the richest are getting exponentially richer (the top half of the “K”), while the poorest are worse off (the bottom half).
Only now, the bottom half is seeing a lot more attention from investors.
And with how much Consumer Staples stocks have lagged for the past three years (up just 16%), chances are good it’s a neglected part of your portfolio.
Let’s fix that with some help from Jason Bodner’s Quantum Score…
Before coming on board at TradeSmith, Jason headed up a trading desk at financial services giant Cantor Fitzgerald. His job was to place multimillion-dollar – and even billion-dollar trades – for large institutional clients.
And when these folks move in and out of stocks, it’s different than when you or I do it.
The biggest investors take days, even weeks, to build a position. And they try to keep their trades as quiet as possible. Because if other traders figure out that a competitor is placing a giant trade, they’ll jump in and push the price up.
After Jason struck out on his own, he devised a “Quantum Score” algorithm to track when big buyers are piling into stocks. It finds stocks with:
- Outstanding fundamentals
- Strong technicals
- Big Money inflows spotted by our computers.
Here are the top five Consumer Staples ranked by Jason’s algorithm:
Jason’s data shows that these are the best-of-the-best companies in the staples business.
They’re not just great businesses. They’re great businesses on the receiving end of unusually large inflows from big, institutional investors.
If you avoided the Consumer Staples sector for the past three years, that was the right call. But now is a great time to round out your portfolio with these “low-tech” winners.
In fact, we’re seeing this “tech aversion” across our data right now. Here are the main market sectors ranked by their Quantum Scores…
Technology is not only one of the worst performers in the market this year. It also has the worst Quantum Score of any major market group.
Note especially the low technical score of 52.7 – that tells us tech has some of the weakest momentum and the smallest level of institutional buying pressure.
And the biggest winning tech sector of the last three years, Communication Services, is the second worst on the list overall.
One tech stock looking to buck the bearish trend is Nvidia…
While scanning the TradeSmith Finance dashboard on Wednesday, an urgent signal caught our eye…
We keep a running view of stocks that qualify for our Convergence signal.
Created by veteran options trader Jeff Clark, it isolates stocks that have been trading in a tight average range over a period of several months.
It does this by measuring the distance between three proprietary moving average lines. The closer the lines, the greater the convergence.
When stocks break up from this signal, they tend to go on explosive runs. Think of a coiled spring. The tighter it’s compressed, the more energy it stores – and the more explosive the move when it finally releases. That’s essentially what Jeff’s Convergence signal measures.
And semiconductor giant Nvidia (NVDA) – the largest company in the world that has traded totally flat in 2026 – was at the top of the Convergence screener.
Here’s the chart…
As you can see, the three moving averages that make up the Convergence system are aligned and starting to move into what Jeff Clark calls a “bullish stack.” That’s the green circle on the right-hand side of the chart above.
You can see that the last time this happened, back in late September 2025, NVDA ran from $175 per share to more than $200 in a little over a month.
NVDA may be setting up for a big run here. And given NVDA’s 7.4% weight in the S&P 500 index, that would prove to be a rising tide that lifts many boats.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily
