What Happened: US Payrolls surged 353,000 during the month of January far ahead of 175,000 consensus expectations. Interest rates popped on the news and bonds fell. Stocks paired early gains.
What Does it Mean? In our opinion, the growth in payrolls suggests a much stronger economy than any economist has been predicting. Furthermore, we believe the idea that rate cuts may be coming in the near future due to a weakening economy may be off the table. We think, the stock market, which has been largely correlated with the movement in interest rates, may now take a pause in its recent bullish momentum as it digests this new news.
Why Do we Care? Our bullish thesis is largely predicated upon lowering interest rates due to a softening economy, particularly in the job market. We think the data reported suggests this may be called into question or at minimum be pushed out. What we do find fascinating with this report is the conflicting information from dozens if not several dozens of companies continuously announcing layoffs. Just this week UPS is the latest to announce job cuts, which if you recall, comes not long after union workers negotiated a significant bump in wages. Regardless of what collective bargaining may yield, the result at UPS is looking like layoffs, which begs the question of who really won that labor dispute?
While the hot jobs data certainly eased the stock market enthusiasm, we remain firmly in the camp that the economic backdrop will continue to ease applying further downward pressure to inflation and ultimately a sustained move lower in rates.
What Happened: Fed leaves rates unchanged, paints mixed picture.
What Does it Mean? On Wednesday, the Federal Open Market Committee announced they would be taking no action when it comes to overnight lending rates. During the press conference Jerome Powell discussed a continued desire to see inflation back to their 2% target while monitoring the economic data closely. Stocks sold off on the news, however rates dropped considerably.
Why Do We Care? As with Friday’s jobs data, in our opinion, the markets continue to be fixated on interest rates. In December, the Fed discussed their target to cut approximately three times during 2024. All eyes were on Wednesday’s announcement and press conference to either confirm or deny December’s announcement. Unfortunately, both sides were disappointed as Powell took a more neutral approach. Ironically, one would expect rates to rise on this news, however directly the opposite occurred. The movement in bonds leads me to believe that markets continue to look for lower rates in the future and a continued softening of inflation.
What Does it Mean? Thursday evening, among a slew of earnings reports, Amazon.com reported a quarterly report delivering $170B in top line revenue vs. expectations of $166B. Furthermore, the company made $1 per share vs. expectations of $0.80.
As a market cap weighted index, the S&P will be influenced by the size of various companies and their respective performance. Amazon falls at #3 on this list with Microsoft at #1 and Apple at #2.
While our optimism regarding markets has a great deal to do with lowered rates, I want to be sure folks understand once again the power of corporate America and just how far we’ve come in the last few decades.
It wasn’t all that long ago Amazon was merely an on-line bookstore, disrupting the likes of Barnes and Noble. Bezos and company did not want to stop there however and now the company boasts products far and wide not to mention movies, television shows, NFL games and is quickly becoming one of the largest delivery companies in the world.
I believe many people have counted out Amazon many times, yet they continue to just keep chugging along, innovating, and profiting for shareholders. If you own the S&P 500 via an index fund or ETF you’re being rewarded by Amazon and many others, and it is once again worthwhile to remember this the next time you’re convinced the markets may crash or the economy may fall to its knees. Never count out American innovation.
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