Weekly Market Update

It was a wild week for stocks as every trading day saw the S&P 500 rise or fall by at least 1%.  Ultimately however, bulls prevailed as despite the Federal Reserve hiking rates by another 25 basis points, the meeting announcements proved to be less hawkish than expected and Fed Chair Jerome Powell acknowledged that the disinflationary process has started.  As a result, the S&P 500 rose roughly 1.6% on the week and is now up over 7.5% year-to-date as the strengthening soft landing narrative continues to boost markets.

Typically, Fed meeting announcements would dominate the financial headlines for the week, but Friday’s jobs report had other ideas.  A whopping 517K nonfarm payrolls were created in January and smashed expectations of 185K (per FactSet).  Furthermore, the unemployment rate fell to 3.4%, tied for the lowest levels since 1969, while the labor participation rate rose indicating workers are returning to the labor force.  It should be noted that the Bureau of Labor Statistics (BLS) implemented significant revisions and seasonal adjustments, which likely distorted the jobs numbers higher, but this report still indicates a huge divergence from a flood of high-profile layoff announcements, particularly in the tech industry (see chart from Bloomberg below).  For example, while tech jobs contracted, leisure and hospitality added a whopping 128K positions in January and it increasingly appears as though the impacts of the pandemic are reversing.  Large cap companies like Amazon and Microsoft incorrectly assumed pandemic consumption trends would long continue and went on hiring binges in 2020 and 2021 while small and mid-sized companies were particularly hard hit by lockdowns and disproportionally reduced headcount.  Now it certainly appears as though this employment situation is reversing as consumption trends normalize.  Exactly how accurate this 517K jobs report for January is, remains to be seen, as does the composition of those jobs between part and full-time positions, but this blowout report marked the 10th straight month of better than expected jobs figure, double the previous longest streak (per Bespoke).  Ultimately, while such a strong labor market complicates the Fed’s battle against inflation and likely guarantees another 25 basis point hike in March, predictions for a severe recession are becoming increasingly less popular.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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