Weekly Update
February 6, 2024
The verbal statement indicating that a March rate cut is not likely poured some water on the fire of potentially overly enthusiastic stock market bulls as the major averages pulled back during and after Powell’s commentary.
Powell did signal rate cuts at some point in 2024, however.
“It will likely be appropriate to begin dialing back policy restraint at some point this year,” said Powell.
Consumer & Employment Strong
Consumer health metrics remained strong during January, even as many analysts expect the consumer to “tap out”.
At the same time, labor market data exceeded expectations for December, showing 216,000 jobs created. Government jobs and health-care-related fields led the way.
Starting the month of February, the latest employment report blew away all expectations, showing 353,000 jobs[1] created in January versus 185,000 estimates by Dow Jones. The labor market continues to surprise to the upside, and the market reaction was an interesting one.
January Labor Data Market Reaction
While the massively better-than-expected January jobs data indicates a stronger economy, it also shows that the economy may still be running hotter than the Fed wants to see. This reinforces the logical probability that a March rate cut could be off the table.
Major U.S. stock indexes didn’t seem to mind, though, as they cheered the data by trading to the upside on the day of. The jobs report was released the morning after positive earnings results from Meta (Facebook), Microsoft, and Amazon. So, perhaps this earnings effect outshined the March rate cut odds everyone seemed to be so fixated upon just a day before.
The probability for a March 25-basis-point cut was all over the place at the end of January and beginning of February, resting at a 20% chance on February 1 after sitting at a 46.2% chance on January 26th, according to the CME FedWatch Tool.
Is the economy still too hot? What do the continuing and massive upside surprises in the job market mean for inflation?
With that monthly overview noted, if you have been considering your options in the financial markets or have questions, feel free to reach out anytime. We are always here as a resource for you.
[1] https://www.cnbc.com/2024/02/02/us-economy-added-35300-jobs-in-january-much-better-than-expected.html