Analyzing the job market data for the third-quarter months is undoubtedly one of the best ways for investors looking to play the upcoming earnings season. Despite a strong rise in COVID-19 cases, thanks to the more lethal Delta strain, the unemployment rate declined through the quarter.

However, the actual picture is not as bright as it seems.

Q3 Job Market Trend

In July and August, the job market gained consistently, reflecting a stable economy. In July, nonfarm payrolls increased by 943,000 (the highest since August 2020). In August, unemployment rates were lower in 15 states and the District of Columbia and stable in 35 states. Nonfarm payroll employment increased in 11 states, decreased in three states, and was unchanged in 36 states and the District — per the data by the U.S. Bureau of Labour Statistics.

The official job market data for the month of September has not been released yet. However, going by a Wall Street Journal report of Oct 3, The Wall Street Journal economists estimate that the department’s September employment report, to be released on Friday (Oct 8), will show the jobless rate dropping to 5.1% from 5.2% in August, 5.4% in July and from nearly 15% in the spring of last year.

This seems to be a better picture compared to the past COVID-hit quarters. However, a declining unemployment rate can only show an improving labor market health if it reflects an increase in job growth. Unfortunately, the above trend reflects a lack of job seekers in the market, indicating a slow-moving labor-force participation rate. The Wall Street Journal report estimates the labor-force participation rate to be at or below 61.7% since April, significantly down from 63.4% in January 2020 (the pre-pandemic days).

Fed's Unchanged Outlook Concerns

Many market watchers had expected that amid the declining unemployment rate through the months of the third quarter, the COVID-induced monetary stimulus might get significantly tapered. During the economic crisis, several stimulus measures were launched mainly in the form of rate cuts and bond purchases.

However, the federal reserve kept its monetary policy intact and also raised its inflation rate projection, strongly indicating a dented economic recovery in the third quarter.

As published in the U.S. News, Joe LaVorgna, chief economist of the Americas for Natixis CIB stated that the economy has boomed over the past 12 months but is poised to slow down in the second half of this year. This has forced many of the investment firms to taper the Q3 growth forecasts of the stocks.

The entire scenario is dragging market sentiments down.

Hit Sectors Before Q3 Releases

Apart from the different arms of healthcare providing support amid the pandemic like therapeutic and vaccine makers, diagnostic testing companies as well as critical care support providers, automotive, hospitality, retail, social assistance, and professional and business services witnessed notable job gains through the third quarter. Technology companies also boosted investor confidence with a consistent rally through the third quarter.

3 Sectors to Bet on Now

Already a lot has been said about the growing prosperity of the digital health sector over the past few months. Digital health has sustained its strong growth momentum in the second half of 2021, thanks to the growing demand for contactless services surrounding the more infectious new virus variants. Market watchers claim that, even beyond the pandemic, digital health is expected to maintain this strength as healthcare professionals and patients leverage its benefits.

In fact, per a report by Research and Markets, the U.S. digital health market is expected to be worth $191.64 billion in 2025, witnessing a CAGR of 28.4% during the forecast period (2021-2025). Therefore, the digital health boom is here to stay and investors eyeing this space can capitalize on it backed by certain trends that can drive this market’s performance in 2021.

With respect to this, among the medical infotech players, adding Computer Programs and Systems, Inc. and Omnicell, Inc. (OMCL Quick QuoteOMCL - Free Report) to one’s portfolio seems prudent as both these Zacks Rank #2 (Buy) companies are expected to report solid third-quarter earnings growth of 21.7% and 46.1% respectively.

Our next focus area is the U.S. auto industry. This industry is currently on a growth track, banking on the growing demand for vehicles and favorable credit conditions. While low inventory levels amid the global chip crunch might act as a temporary headwind, the industry’s overall outlook appears promising.The soaring popularity of electric vehicles is spiking sales volumes. Also, rapid digitization has been paying off well and is set to further boost the prospects of the industry participants.

At present, we ask investors to resort to stocks like AutoNation, Inc. (AN Quick QuoteAN - Free Report) and Group 1 Automotive, Inc. (GPI Quick QuoteGPI - Free Report) , which have third-quarter expected earnings growth rate of 123.6% and 83.6% respectively. Both the companies sport a Zacks Rank #1 (Strong Buy) at this moment. You can see the complete list of today’s Zacks #1 Rank stocks here.

The onslaught of COVID-19 seems to have permanently limited consumers’ outdoor exposure. In such a situation, the Internet software space is benefiting from accelerated demand for digital transformation and the ongoing shift to cloud. High demand for SaaS due to the increasing need for remote working, learning and diagnosis software as well as cybersecurity applications has been a major driving factor amid the disruptions caused by the coronavirus outbreak.

Here, we suggest investors to snap up Zacks Rank #1 stocks like Paycom Software, Inc. (PAYC Quick QuotePAYC - Free Report) and Jiayin Group Inc. (JFIN Quick QuoteJFIN - Free Report) . These stocks also have stellar earnings growth estimate of 26.4% and 87.5% respectively for the third quarter of 2021.