The futures market points to a negative open to today’s stock trading. Early this morning, investors received eagerly-awaited employment data for the month of December from the U.S. Bureau of Labor Statistics (BLS). A surprisingly high total of 256,000 jobs were added, versus the outlook for 155,000 and the revised-down prior month figure of 212,000. This follows Automatic Data Processing’s own recent report that recorded 122,000 new positions for the month, below the 146,000 scored in November.
We note that the BLS’s JOLTS (Job Openings and Labor Turnover Survey) release measured about 300,000 more available jobs in November than the previous month. Notwithstanding that positive, the release revealed that fewer people are quitting their jobs and employers are whittling down their workforces mainly through attrition, rather than layoffs. Too, initial jobless claims for last week came in lower than expected, but continuing claims increased.
Other data provided by the BLS today showed that the unemployment rate dipped one-tenth of a point, to 4.1%, last month. Hourly wages advanced at a slower pace of 0.3%, compared to a 0.4% improvement in November. Year on year, pay gains also slipped a bit, to 3.9%. On balance, the labor market appears to be faring better than many had expected. Separately, the University of Michigan will present its preliminary consumer sentiment survey for January at 10:00 a.m. (Eastern Standard Time). The sentiment reading is expected to have held firm at the very modest level of 74.0.
Next week, Wall Street will get updated inflation news in the forms of the December consumer price and producer price indexes. Lately, there have been indications that the cost of goods and services is perking up. The Federal Reserve is scheduled to meet January 30-31, and will consider the recent economic data in making a decision on the range of short-term interest rates. Currently, the federal funds rate stands at 4.25%-4.50%, after a total one percentage point of reductions in 2024.
The consensus on the Street appears to be that the Fed will hold rates steady this month. A growing number of market pundits seems to think that the central bank might only implement two one-quarter-point rate cuts this year. Some even say that no further reductions are coming. Sustained inflation and high employment and worries that President-elect Trump’s policies on import tariffs and immigration will push up the prices of goods and services largely account for this conservative viewpoint.
Debates over the likely course of U.S. legislation and inflation are impacting stock valuations. Share-price volatility has picked up a bit. Year to date, the tech-weighted NASDAQ composite, broader Standard & Poor’s 500 index, and the blue-chip Dow Jones Industrial Average are up 0.9%, 0.6%, and 0.2%, respectively. Last year and 2023 were banner years for index performance, with all three rising in the double digits. Given elevated price-earnings ratios, however, a fair population of analysts anticipate more-subdued price gains in 2025. This seems highly likely. Should bond yields rise further, which we don’t forecast, that could place marked pressure on the stock market.
Having engaged in tax-loss and portfolio window-dressing stock sales at the end of 2024, many individual investors and fund managers are now flush with cash. This cash can be put to work in the event of market weakness. Absent such weakness, investors still can buy shares of beaten down high-quality issues, instead of being over-weighted in the leading technology stocks that were largely responsible for the index advances during the past two years.
Investors would do well to maintain core holdings of stable large-cap stocks, as well as some exposure to good-quality mid- and small-cap equities. – David M. Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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