By Doug Busch

Employment-related news may be sending an early warning that the labor market is losing steam, a precursor to a recession. The list of companies announcing layoffs continues to grow. Meta Platforms, Amazon, Microsoft, Intel Corp, United Parcel Service, Applied Materials, and Target are just some of the names disclosing job cuts in recent weeks.

Shares of payroll processors, staffing firms, and the like -- companies that often lead employment trends -- have begun to weaken. Stocks like Automatic Data Processing, Paychex, Robert Half, and ManpowerGroup are rolling over from multi-month highs. With no official job numbers thanks to the government shutdown, the market is using these stocks to send a cautionary message. The old adage "stocks don't lie, people do" comes to mind.

When technicians see blatant weakness in individual stocks while indexes trade at all-time highs, it is a red flag. Take the S&P 500's 17% year to date return, which has it within a stone's throw of the very round 7000 number, and hold it up against some of these names.

   -- Robert Half, is down 61% in 2025 and paying a dividend of almost 9%. That 
      is dangerously high and likely unsustainable. 
 
   -- Automatic Data Processing, on a nine-week losing streak and down another 
      7% this week after yesterday's ugly earnings reaction. 
 
   -- Paychex has declined 13 of the last 20 weeks and has shed nearly one 
      third of its value since its 52-week high in early June. 

Bottom line: this sector is facing headwinds and deserves re-evaluation.

Two software stocks in this sector are showing particularly worrisome charts: Paycom Software and Paylocity Holding. The former I wrote about one month ago and yesterday it broke below a bear flag pattern. Round number theory is coming into play as well, with the $200 figure acting as the trigger. The explosive downside move we are seeing this week was preceded by four consecutive weeks that closed very tautly, all within 1%. This should now see a potential move toward $165 by year end, 12% below today's price. Notice that since the start of September, the 200-day simple moving average has started to slope lower, often a canary in the coal mine. The bearish move began with a bearish rounded top breakdown. This drop speaks volumes. Paycom Software reports earnings after the close on Nov. 5.

Paycom Software was trading around $187 Thursday.

Paylocity Holding, a payroll software company focused on midsize companies, is also feeling the pain. The stock advanced in just three sessions during the entire month of September, demonstrating how persistent the selling has been. Bearish filled-in candles were recorded after earnings on Feb. 7 and Aug. 6. The stock currently trades 37% off its most recent 52-week high and is 14% from the April low. The chart shows how it has been stuck below its 21-day exponential moving average the last three months. Yesterday it slumped 5% in ballooning volume, breaking below a bear flag. This looks like it could move toward $115 by year end, 19% below today's prices. Paylocity Holding reports earnings Nov. 5 after the close.

The stock was trading around $142 Thursday.

Write to Doug Busch at douglas.busch@barrons.com

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October 30, 2025 12:30 ET (16:30 GMT)

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