Economy
We had a one-two punch of economic data this week, and the Fed has to like what they saw. Early in the week, the January jobs report showed nonfarm payrolls rising by roughly 130,000, comfortably ahead of expectations (~70,000). In addition, the unemployment rate dipped to about 4.3%, evidence that the labor market remains resilient. Hiring strength was led by healthcare, social assistance, and construction, though softness was found in areas tied to government and financial services.
Then on Friday, the January Consumer Price Index showed headline inflation rising 0.2% month-over-month and slowing to 2.4% year-over-year, below consensus estimates and marking the slowest annual pace in months. Core CPI (excluding food & energy) increased moderately but remained subdued relative to recent prints. The cooler inflation backdrop alleviated some upside price pressure concerns and shifted market expectations modestly toward rate cuts later in the year. The latest data from the CME Group's FedWatch tool implies the market is not expecting the Jerome Powell-led Fed to change interest rates before his term ends in May, but that we'll see multiple cuts once Kevin Warsh fills the position. With a week of economic data like this, the case for another rate cut is further strengthened.
Markets
The equity markets remained volatile this week, with the S&P 500 declining 1.4%. Despite the positive economic news and no real catastrophic events, selling pressure continued to impact the areas of the market most exposed to technology and artificial intelligence. There's been a noticeable shift in sentiment and how people are feeling about tech stocks. While the Nasdaq (a tech-heavy stock index) was down 2% this week, a basket of consumer staples stocks (XLP) that includes names like WalMart, Costco, and Procter & Gamble was up 2.4%. This isn't widespread indiscriminate selling of stocks, but instead it's a rotation from growth to defensive positions. At present, we have volatility in the markets, but it's certainly not extreme when looking at the markets as a whole.
What We're Reading
- Should You Take RMDs Early in the Year or Wait?- Morningstar
- Healthcare Jobs Have Become the Engine of America's Labor Market- WSJ
Happy Valentine's Day - we're hoping you have a wonderful weekend.
Dogwood Wealth Management