The futures market indicates a mixed start to today’s stock trading. Investors received new employment data this morning. For the month of January, U.S. nonfarm payrolls increased a very strong 353,000, compared to economists’ outlook for an advance of 185,000 and the revised prior-month gain of 333,000. The domestic unemployment rate held steady at 3.7%. Average work-week hours slipped to 34.1 from 34.3. Hourly wages ramped up 0.6%, month to month, double the experts’ estimate and better than the 0.4% rise in December. On a year-to-year basis, wages surged 4.6%, versus the 4.1% pace recorded in the final month of 2023. The worker participation rate remained stuck at a modest 62.5%.
Currently, demand for employees is holding up well. Despite today’s unexpectedly robust numbers, initial jobless claims have ticked higher, employment cost growth has lost some momentum, and people are changing jobs at a slower rate. January data is heavily influenced by seasonal factors. It’s true that open positions have recently held near the nine million mark, while the population of those seeking employment is just under six million. That suggests jobs are easy to find, but matching available skills with what is needed has not been a smooth process. Too, some high-profile job cuts, at Alphabet (GOOG), Amazon.com (AMZN), Lockheed Martin (LMT), Microsoft (MSFT), and United Parcel Service (UPS), for example, point to softening employment ahead. Optimism is warranted, in that many companies are simply bringing their workforces back to more normal levels, as business disruptions from the coronavirus fade into the background.
Later this morning, Wall Street will get new data on December factory orders, expected to have increased only incrementally, month over month. The Street also will digest final consumer sentiment information for January from the University of Michigan; a modest improvement to 79.0 from 78.8 is anticipated. These data points, along with the just-released employment numbers, as well as last night’s high-profile earnings reports, will effect share prices today. After yesterday’s closing bell, Apple (AAPL), Amazon.com, and Meta Platforms (META) reported operating results for the latest quarter. All three beat analysts’ expectations, and Amazon and Meta shares rose in after-hours trading. Sales weakness in China is weighing on Apple’s stock price. Notably, Meta’s announcement of its first-ever quarterly common dividend is being well received.
On Wednesday, Federal Reserve Chairman Jerome Powell threw cold water on expectations that the central bank would begin pushing down short-term interbank lending rates, now 5.25%-5.50%, as soon as March. The major stock market indexes might be hard pressed to post gains for this week. Notwithstanding the challenging start to February, we note that the indexes have turned in positive performances in each of the past three months. The Federal Open Market Committee has suggested it will lower the federal funds rate by about three one-quarter-point moves in the second half of 2024. Stock and bond markets appear to expect about twice as much, starting in May. Additional corporate earnings reports, as well as data on employment, consumer spending, and inflation, will heavily influence the Fed’s ultimate strategy through year end for keeping inflation under control.
In the meantime, renewed concern about domestic regional banks’ commercial loan books and the yet-to-be-resolved conflict between the Israelis and Palestinians pose share-price volatility risk. We advise investors to concentrate on holding equities of companies that are leaders in their respective sectors. The healthcare, financial, consumer staples, and industrial sectors might well begin to garner more attention, relative to the leading technology issues, now in favor, in the coming months. - David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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