Economy
The jobs numbers just continue to deliver strong results, and this week was no exception. First, the number of people who filed for unemployment insurance last week was at the lowest level since February 2024. We may see these numbers tick up over the next few weeks due to the fires in the west as we have seen them rise following severe storms, notably the last two major hurricanes. Second, the number of jobs created for the month of December was 256,000. Wall Street estimates had this number coming in at 155,000, so we blew the top off with that report. The unemployment rate came in at 4.1% versus estimates of 4.2%. The concerns of a strong labor market contributing to higher inflation were somewhat assuaged as average hourly earnings continue to moderate. Friday's report paints a picture of a strong labor market, which while in and of itself is a good thing, it did further reduce Wall Street's expectations for additional rate cuts from the Fed. In total, the economy added more than 2.2 million jobs in 2024.
Markets
The market's reaction to the jobs report was a classic "good news is bad news" with stocks selling off into the weekend. For the week, the S&P 500 declined by 1.94%. The 10-year treasury rate eclipsed 4.7%, the highest rate since Fall 2023. Higher rates on the 10-year treasury can cause traders and investors to sell their stock positions as bigger yields in risk-free assets are more competitive with volatile stocks. The last time we saw the 10-year at these levels, it continued to rise until it hit 5%, and then reversed course sharply falling below 4% within 2 months, a move that sent stocks soaring higher. While Friday's move in the markets was not want anyone wants to see, it needs to be contextualized. The market did not sell off because we are somehow suddenly at a greater risk of the economy heading into a recession. The market did not sell off because of a spike in oil prices which could send inflation soaring higher. The market sold off because of a report that the labor market is in great shape. A strong labor market is indicative of a healthy economy, one in which lies the opportunity for growth in corporate earnings. And speaking of corporate earnings, we are kicking off earnings season this week with a handful of reports from the financial sector. Financial stocks were one of the best performing areas of the market last quarter, outperforming the S&P 500 by more than double.
What We're Reading
- The Stock Market Embraced Higher Yields. Now It Fears Them. - WSJ
- Who's Afraid of Rising Treasury Yields? Not Stocks - Nir Kaissar
Have a great weekend.
Dogwood Wealth Management