Asset Allocation Chart of the Month
Currently, Claims Are the Signal; Layoffs Are the Noise
- Historically, layoffs and jobless claims have provided a reliable real time signal of earnings stress. Companies typically turn to job cuts as a last resort, usually when revenue is falling short of plan and management confidence in near term demand deteriorates.
- A broad based and persistent increase in claims has typically preceded downward earnings revisions, margin compression, and equity multiple contraction. By contrast, when claims remain contained, firms are generally able to defend profitability without sacrificing labor, and earnings risk tends to stay manageable—even in periods of elevated uncertainty or slowing growth.
- Why claims matter, especially now. Even excluding the Technology sector, S&P 500 valuations are near record highs, leaving little room for multiple expansion and, as such, earnings need to do the heavy lifting. Outside the AI supply chain, demand has become more discretionary, making volume growth more difficult. Up to now, companies have managed through these pressures via a combination of pricing, productivity enhancements, and hiring restraint. Claims can act as a canary for when cost control becomes reactive. Once firms are forced to cut labor broadly, equities tend to react quickly, not gradually.
- Currently, claims data indicate little cause for concern; in fact, they suggest a relatively healthy earnings backdrop. In contrast, layoff announcements have risen to concerning levels.
- Layoff announcements can provide an early warning signal, and we monitor them closely. However, the 2025 surge in Challenger and WARN data appear to be more noise than signal. A spike in early 2025 was composed mostly of Federal workers. Remove those announced layoffs, and the upward trend disappears. Importantly, it was not a broad, cyclical wave of private sector layoffs that would typically raise earnings concerns. The fact that these government layoffs failed to show up in jobless claims suggests that most of these workers either found jobs or left the labor force.
- Companies do appear to be reshaping workforce composition, but not in response to collapsing demand. The macro backdrop is one of uncertainty and more selective spending. In response, companies are reducing or eliminating roles with lower marginal productivity and using attrition, buyouts, and hiring restraint rather than involuntary layoffs. Firms expect productivity gains to offset slower growth, and that was true in 2025.
The Touchstone Asset Allocation Committee
The Touchstone Asset Allocation Committee (TAAC) consisting of Crit Thomas, CFA, CAIA – Global Market Strategist, Erik M. Aarts, CIMA – Vice President and Senior Fixed Income Strategist, and Tim Paulin, CFA – Senior Vice President, Investment Research and Product Management, develops in-depth asset allocation guidance using established and evolving methodologies, inputs and analysis and communicates its methods, findings and guidance to stakeholders. TAAC uses different approaches in its development of Strategic Allocation and Tactical Allocation that are designed to add value for financial professionals and their clients. TAAC meets regularly to assess market conditions and conducts deep dive analyses on specific asset classes which are delivered via the Asset Allocation Summary document. Please contact your Touchstone representative or call 800.638.8194 for more information.
A Word About Risk
Fixed-income securities can experience reduced liquidity during certain market events, lose their value as interest rates rise and are subject to credit risk which is the risk of deterioration in the financial condition of an issuer and/ or general economic conditions that can cause the issuer to not make timely payments of principal and interest also causing the securities to decline in value and an investor can lose principal. When interest rates rise, the price of debt securities generally falls. Longer term securities are generally more volatile. Investment grade debt securities may be downgraded by a Nationally Recognized Statistical Rating Organization to below investment grade status. Non-investment grade debt securities are considered speculative with respect to the issuers' ability to make timely payments of interest and principal, may lack liquidity and has had more frequent and larger price changes than other debt securities. Equities are subject to market volatility and loss. Growth stocks may be more volatile than investing in other stocks and may underperform when value investing is in favor. Value stocks may not appreciate in value as anticipated or may experience a decline in value. Stocks of large-cap companies may be unable to respond quickly to new competitive challenges. Stocks of small- and mid-cap companies may be subject to more erratic market movements than stocks of larger, more established companies. Investments in foreign, and emerging market securities carry the associated risks of economic and political instability, market liquidity, currency volatility and accounting standards that differ from those of U.S. markets and may offer less protection to investors. The risks associated with investing in foreign markets are magnified in emerging markets, due to their smaller and less developed economies.
The information provided reflects the research and opinion of Touchstone Investments as of the date indicated, and is subject to change without prior notice. Past performance is not indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing in certain sectors may involve additional risks and may not be appropriate for all investors. The indexes mentioned are unmanaged statistical composites of stock or bond market performance. Investing in an index is not possible. For Index Definitions see: TouchstoneInvestments.com/insights/investment-terms-and-index-definitions
Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Fund. To obtain a prospectus or a summary prospectus, contact your financial professional or download and/or request one on the resources section or call Touchstone at 800-638-8194. Please read the prospectus and/or summary prospectus carefully before investing.
Investment return and principal value of an investment in a Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. All investing involves risk.
Touchstone Funds are distributed by Touchstone Securities, LLC*
*A registered broker-dealer and member FINRA/SIPC.
Touchstone is a member of Western & Southern Financial Group
Not FDIC Insured | No Bank Guarantee | May Lose Value
