by Krystal Daibes Higgins, CFA
Vice President Equity Research
All investor eyes were on the jobs report today and per usual, the economic data did—and did not—disappoint. The most recent report outpaced expectations, with 216,000 more jobs created in December compared to the estimate of 170,000. However, a negative 71,000 revision to the prior month left investors feeling comfortable with the stronger-than-expected data. While the strong number of job gains is good news for American workers, it’s a bit more complicated for the Federal Reserve. Over the past year, the Fed worked aggressively to tame inflation by cooling the labor market. The deterioration of new jobs is key to determining the path of interest rates in the coming year. Overall, the latest jobs report signals to us that the Fed continues its path to a soft U.S. economic landing, achieving the difficult feat in maintaining the downward core inflation trend while avoiding the risk of a recession. However, it also signals that the Fed may keep rates steady for longer than analysts anticipated. From a job openings angle, the monthly JOLTS data was released earlier this week and the number of jobs available has dropped to 8.8 million, significantly lower than the 12 million openings at the beginning of 2023. The number of job openings per unemployed person is now 1.4 to 1, from 2 to 1.
Equity Market Update
The stock market is off to a sluggish start, ending the week down 1.7%. In contrast to the remarkable year the Magnificent 7 stocks (Alphabet, Amazon, Google, Meta, Microsoft, NVIDIA and Tesla) had in 2023, they went on a three-day losing streak this week along with the broader technology sector. It’s not a big surprise that these companies are taking a breather while the rest of the stocks in the S&P 500 catch up. In the fourth quarter of last year, we finally saw signs of a “normal” bull market as the market’s rise included a broader number of companies, versus just the handful that drove the majority of 2023’s return. While these seven companies dominated the market’s returns, many are left wondering if they can continue their trajectory. First, we need to look further back. Recall 2022’s turbulent market, sending technology stock prices down nearly 60% in some cases. When we combine 2022 and 2023 stock market performance, what we see is actually a recovery in 2023. From here, the direction of the stock market is going to depend on two major factors: interest rates and fundamentals. If economic data continues to cool and the Fed indicates it will cut rates, barring an economic shock, equities will rise and valuations will trend higher. Fundamentally, these stocks will move on whether they’re able to maintain their earnings, free cash flow and their growth over the subsequent quarters and year.
Takeaways for the Week
The most recent jobs data was a wash
Equities are off to a slow start, and their performance for the remainder of the year will largely depend on the path of interest rates and fundamentals