Staffing Stocks Climb Amid Rising Jobless Claims

Government stimulus and relaxed business restrictions are fueling job market growth.

Staffing sector shares outperformed the broader market on Thursday, even as Labor Department data showed weekly jobless claims unexpectedly increased to 861,000 from 773,000 the previous week, ending a nearly month-long decline.

Key Insights

• Staffing stocks gained as investors anticipate continued stimulus efforts and eased restrictions to boost employment.
• Shares of Automatic Data Processing, Inc. (ADP) broke out from a monthly symmetrical triangle pattern, potentially signaling a move toward retesting their record highs.
• Paychex, Inc. (PAYX) also surpassed a symmetrical triangle resistance, suggesting further buying momentum in upcoming sessions.

Despite ongoing challenges in the labor market, hiring rates exceed those of January, with gradual improvement expected due to sustained stimulus, relaxed regulations, and lifted stay-at-home orders across various regions. A $1.9 trillion government relief bill under Congressional review includes proposals to extend unemployment benefits set to expire mid-March.

Below, we analyze two leading staffing stocks poised to benefit from job market recovery, employing technical analysis to highlight potential trading opportunities.

Automatic Data Processing, Inc. (ADP)

ADP specializes in HR services such as payroll and benefits administration. The New Jersey-based firm reported flat Q2 earnings of $1.52 per share, surpassing consensus estimates of $1.29. Growth was driven by a 5% revenue rise in its Professional Employer Organization (PEO) segment year-over-year. As of February 19, 2021, ADP boasts a market cap of $73.86 billion and has risen approximately 7% over the past month. Investors also enjoy a 2.23% dividend yield.

The stock experienced a golden cross in November, with its 50-day moving average crossing above the 200-day average, signaling a resumed long-term uptrend. Recently, ADP shares broke out from a monthly symmetrical triangle, potentially triggering a retest of the all-time high at $182.32. Traders entering at this breakout level should consider stop-loss orders below the triangle’s upper trendline to manage downside risk.

Insight

A symmetrical triangle pattern features two converging trendlines connecting a series of peaks and troughs with similar slopes, often indicating a potential breakout.

Paychex, Inc. (PAYX)

With a market capitalization exceeding $30 billion, Paychex offers payroll outsourcing services to small and medium-sized businesses, serving roughly 600,000 clients. The company posted Q2 earnings of $0.73 per share on revenues of $983.7 million, beating Wall Street expectations with a 4.3% year-over-year profit increase. Demand for its HR outsourcing, time and attendance, and retirement solutions remains strong among its existing customer base. Paychex shares yield 2.78% and have appreciated 3.29% over the past month as of February 19, 2021.

Similar to ADP, Paychex shares broke above a symmetrical triangle resistance on Thursday, enhancing the likelihood of continued buying in future sessions. Traders can apply the measured move technique to set profit targets by calculating the triangle’s maximum width and adding it to the breakout point—for example, adding $16 to a $90 breakout suggests a target near $106. Risk can be managed by placing stop-loss orders below the February 12 low at $87.67.

Insight

A profit target is a pre-established exit point for a trade that locks in gains, commonly used in risk management strategies by investors and technical traders.

Disclosure: The author held no positions in the mentioned securities at the time of writing.

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