On Friday, the Bureau of Labor Statistics (BLS) will report the August unemployment rate. Our forecast is for a healthy 4.1% result, just below the 4.2% consensus. In his Jackson Hole keynote speech last Friday, Federal Reserve Chairman Warsh offered a similarly upbeat assessment. "On the employment side of the Fed's dual mandate, our country is doing well. Labor markets are quite stable." He added the following. "The jobless rate, at 4.1 percent, remains low by historical standards and has not changed much for a couple of years." To be sure, job growth has slowed. The three-month average change in nonfarm payrolls declined to 20,000 in July, from 142,000 in May as July payrolls declined by 23,000. We estimate that nonfarm payrolls increased by 50,000 in August, versus consensus of 45,000. The weekly ADP report recently showed private payroll gains averaging about 12,000 a week, or about 48,000 on a four-week basis. Mr. Warsh provided an explanation for slow growth. "When labor supply is barely growing, monthly job gains are naturally going to run low." The median estimate in the Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters is for a monthly average of 46,600 payroll gains in 3Q26, improving to 66,400 in 4Q. While hires are low, layoffs are too. The four-week moving average of initial jobless claims, at 205,500, is well below the 300,000 that would worry us. Based on the advance release of the Chicago Fed Labor Market Indicators, there is a 29.5% probability that the August unemployment rate will remain at 4.1%, a 20.8% probability it will fall to 4.0%, and a 20.2% probability it will rise to 4.2%. Overall, the probability tips towards a lower unemployment rate. "People who want to work, by and large, are holding or finding jobs," Warsh said. "They may well be concerned about possible future labor disruptions, but as of now, I believe the labor markets are consistent with full employment."

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

On Friday, the Bureau of Labor Statistics (BLS) will report the July unemployment rate. Our forecast is for a healthy 4.2% result, below the 4.3% consensus. The trend in hiring has improved from a year ago. The three-month moving-average change in nonfarm payrolls was 111,000 in June, up from 34,000 in June 2025. The breadth of hiring also has improved. The BLS Diffusion Indexes, part of the establishment data in the employment report, indicated 54.4% of 250 private industries are hiring, up from 46.0% in June 2025. The index for manufacturing rose to 55.6% from 44.7% a year earlier. Hiring by a broad range of industries is beneficial because not everyone can work in healthcare, which we expect to be a leading source of job growth. We estimate that nonfarm payrolls increased by 80,000 in July, below the consensus of 91,000. The weekly ADP report has been showing private payroll gains averaging about 15,000 a week, or approximately 60,000 on a four-week basis. Based on our analysis using the Atlanta Fed's jobs calculator, nonfarm payrolls would need to average approximately 83,500 a month to hold the unemployment rate at 4.2% over the next 12 months. The Labor Department's weekly reports on initial jobless claims suggest that actual layoffs are low. The four-week moving average of 202,750 claims is down from 224,000 when we wrote this preview last month, and well below the 300,000 that would create a warning. Based on the advance release of the Chicago Fed Labor Market Indicators, there is a 26.2% probability that the July unemployment rate will remain at 4.2%, a slightly higher 27.3% probability it will fall to 4.1%, and just a 12.5% probability it will rise to 4.4%. Overall, the relative probability "leans" towards a lower unemployment rate. The Chicago Fed's indicator of the layoffs and other separations rate is 2.05% for July, down from 2.08% in June and 2.07% a year ago. The estimate of the hiring rate for unemployed workers improved to 45.52% in July from 44.59% in June and 45.49% a year ago.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.