Last week featured several key economic data points investors must consider together, including US labor figures that appear strong on the surface but hide fragility, Thailand's GDP surprise to the market, and election results that shift economic policy direction.
The most accurate answer is “strong in some aspects but concealing structural weaknesses.” January's nonfarm payrolls rose by 130,000 jobs, nearly double market expectations, and unemployment fell to 4.3%, which sounds positive. However, December's figure was revised down to just 48,000 jobs. Most importantly, reviewing the full-year 2024 employment data reveals it was the slowest job creation year in 20 years outside of recession periods.
Economist Mohamed El-Erian highlights that this phenomenon arises from three simultaneous pressures: first, companies are preemptively restructuring for AI before productivity gains manifest; second, firms that overhired in 2021–2022 are now adopting a "hire less, fire less" approach; third, uncertainty in policies—including trade taxes and geopolitical risks—is delaying hiring decisions.
Although the US economy still appears robust overall (GDP grew over 2% on average in the first three quarters of 2024, with GDPNow projecting 5.4% growth in Q4), we identify three main risk points.
The first risk is a labor market weaker than credit markets currently price in. If AI is driving a structural slowdown in employment rather than a cyclical one, we may be entering a "jobless growth" era where GDP can expand but household incomes fail to recover, causing consumer credit default rates to rise—risks not yet reflected in the bond market.
The second risk concerns Private Credit and Business Development Companies (BDCs) lending to software firms when valuations were high during low-interest periods. These companies' cash flows are insufficient to service debt, and as AI disrupts business models (for example, by performing better without those software products), the risk of default increases.
The third risk is the BBB cliff—the possibility that many BBB-rated bonds, which comprise over 50% of the investment-grade index, will be downgraded to "fallen angels" (lower credit ratings). If the labor market weakens more than expected and consumer spending declines, these companies' revenues will fall, impairing debt repayment capacity and potentially causing widespread market impacts.
The most significant variable now is the Federal Reserve's monetary policy direction under Kevin Warsh, who will succeed Jerome Powell in May. Warsh is known as a hawkish economist, but the current economic context differs. If the labor market is structurally weaker than headline figures suggest, pressure will mount on Warsh to ease policy more than markets expect. Conversely, if Warsh signals unexpectedly hawkish stances, market volatility could surge rapidly, potentially impacting the economy.
Thailand's economy grew 2.5% in Q4 2024, significantly above InnovestX's forecast of 0.7%. The main drivers were threefold: (1) accelerated public investment disbursements up 13.3%, partly due to expedited spending before parliament dissolution; (2) private consumption increasing 3.3%, led by vehicle sales surging 26.4% ahead of the first phase conclusion of the EV 3.0 scheme; (3) private investment expanding 6.5%, with machinery investment turning positive for the first time in seven quarters.
However, caution is warranted regarding front-loading risks, as early durable goods demand could slow consumption in 2026 without replacement measures. Furthermore, despite exports growing 8.7%, computer export values rose 91% while production grew only 17%, indicating a risk that Thai exports are mainly transshipment products, offering limited benefits to domestic operators.
Following Thailand's general election where the Bhumjaithai Party secured about 193 seats and led government formation, InnovestX raised Thailand's 2026 GDP forecast from 1.4% to 1.7%. Improved political stability is expected to support economic stimulus measures such as a three-year debt moratorium and the 'Half-Half Plus' program. Inflation is projected at 0.25% for 2026. The Bank of Thailand is expected to cut rates twice by 25 basis points each to 0.75% by year-end. The baht is forecast at 31.4 THB/USD in Q1 and 32.0 THB/USD for the full year.
Nevertheless, we expect growth momentum in the first half of the year to lag the second half, due to delays in public procurement and disbursements during new government formation.
In the short term, we expect the SET Index to trade within 1,400–1,485 points, outperforming most global equity markets due to political clarity and attractive valuations at a 2026F PER of 15 times, below the 10-year average of 16 times. Continued fund inflows could push the SET toward 1,500 points.
The recommended strategy is "Selective Buy," emphasizing defense without chasing prices, focusing on two main themes: Earnings Play stocks expected to grow Q4/2025 profits by over 10% year-on-year, such as BGRIM, CHG, PRM, and quality dividend stocks yielding over 5%, including AP, DIF, KTB, PTT, TISCO for the long term, and BAM, KBANK, SAT, THANI for a six-month horizon.
We wish investors good luck.
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