eyeQ: UK recruiters – the hits keep coming
interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to analyse macro conditions and generate actionable trading signals. This time it shows macro conditions are deteriorating.
16th April 2024 10:26
by Huw Roberts from eyeQ
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"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
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Robert Walters
Trading signal: long-term strategic model
Model value:380.90p
Fair Value Gap: -3.27% discount to model value
Model relevance: 79%
Data correct as at 16 April 2024. Please click glossary for explanation of terms.
We make no apology for re-visiting the UK recruitment sector once again. Last week, PageGroup (LSE:PAGE) featured in our weekly top 10 as a stock that was vulnerable. Yesterday, it issued a downbeat outlook, and the stock is now down around 12% since then.
This morning, both Hays (LSE:HAS) and Robert Walters (LSE:RWA) have echoed those sentiments, describing the UK labour market as “challenging”.
We keep returning to this topic because of the doubts surrounding the quality of the official statistics on the UK labour market. The authorities have repeatedly warned us that the response rates to the official Labour Force Survey have fallen so low that the Office for National Statistics (ONS) has had to change methodology. In this environment, the health of recruitment companies is a good proxy for how robust hiring, firing and wage growth really is.
The latest ONS statistics were released today and showed a mixed picture – the unemployment rate ticked higher but wages grew faster than expected. So, more people out of work, but those in work are earning more. On balance, the biggest takeaway is that sticky wage gains make Bank of England rate cuts slightly less likely, but tomorrow’s inflation data will be key there. Markets are hoping headline CPI falls from 3.4% to 3.1%, which would open the door to a reduction in base rates.
Back to UK recruitment companies. From a macro perspective, Robert Walters and Hays have the same profile as PageGroup. They need strong economic growth but falling inflation expectations, i.e. the complete opposite of the picture we got from today’s labour market data.
Hence why eyeQ model value is falling. Our smart machine shows macro conditions are deteriorating; in the case of Robert Walters, model value has fallen 3.8% in the last month.
In Robert Walters’ case, the stock is moving lower largely in tandem - it screens as slightly (3.27%) cheap. So, no signal in this instance. It’s more a case of watch eyeQ model value, which tells you where the stocks “should” trade given overall macro conditions. And right now, it’s saying UK recruiters - and by extension, the UK labour market – are struggling.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, singe stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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