Dec 11, 2023

Jobs Report – Nothing New

Weekly Market Commentary

The latest jobs report did little to alter the economic outlook. Instead, it was a steady-as-she-goes report.

Nonfarm payrolls grew by 199,000 in November, according to the U.S. Bureau of Labor Statistics (BLS). It was nearly in line with the consensus forecast among economists of 190,000 (CNBC). The unemployment rate fell to 3.7% in November from 3.9% in October.

The graphic below reviews the 3-month moving average for nonfarm payrolls in 2022 and 2023. A 3-month average helps smooth away some of the volatility and noise you sometimes get in monthly numbers.

What is a 3-month moving average? For November (204,000), we average the monthly payrolls numbers for September, October, and November. For October, we average August, September, and October, until we get back to January 2022.

The graphic illustrates that job growth has moderated but not to a level that would be concerning. Moreover, the last six months have been in a steady, narrow range: not too hot, but not too cold.

While there are challenges in finding work in some industries, there’s nothing here to suggest that economic growth is about to stall.

For the Federal Reserve, growth is more sustainable, as the labor market slowly comes into balance. It helps bolster the case that the rate-hike cycle is probably over, but nothing that might encourage the Fed to contemplate lower rates.

For investors, it was a bit of a disappointment. You see, they wanted a smaller rise in jobs, as they believe it would bolster their case for rate cuts.

A few weeks ago, investors had shifted into the “higher for longer” camp on interest rates. But over the last month, sluggish economic data pushed Treasury bond yields down sharply. Now investors expect an aggressive round of rate cuts next year—up to 5 rate cuts. At least that is the current consensus provided by closely watched data from the CME Group. And, the sharp drop in yields sparked a furious rally in stocks last month.

Investors have front-run rate cuts before. November’s employment numbers offered little for those who believe the Fed will start cutting rates early next year.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Adviser and Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc., Member FINRA/SIPC. 130 Springside Drive, Suite 300, Akron, OH 44333-2431 800.765.5201 Prosperity Partners and FDP Wealth Management, LLC are separate entities from ValMark Securities, Inc. and Valmark Advisers, Inc. Prosperity Partners, FDP Wealth Management, LLC, ValMark Securities, Inc., Valmark Advisers Inc., and their representatives do not offer tax advice. You should consult your tax professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

Indices are unmanaged and do not incur fees, one cannot directly invest in an index. You should consult your tax professional regarding your individual circumstances. This information is provided by Financial Jumble, LLC. Financial Jumble, LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

RELATED POSTS

A Three-Year Anniversary

On October 12, 2022, the S&P 500 Index hit a cyclical low. In hindsight, that marked the end of the 2022 bear market. Fast forward three years, and the current bull market has now been running for three years.

Government Shutdowns: Why Investors Rarely Care

Historically, US government shutdowns have had minimal impact on the stock market. Let’s review the graphic below. Since 1976, government shutdowns of varying lengths have had little effect on stocks, as measured by the S&P 500 Index.

Reductions in Interest Rates and Market Response – Historical Review

A couple of weeks ago, the Federal Reserve cut its key rate, the fed funds rate, by a quarter-percentage point to 4.00-4.25%. It’s the first rate cut since last December. So, is this one and done, or will there be a series of rate reductions? A speech delivered last week by Fed Chief Powell wasn’t overly dovish, but the Fed meets two more times this year, and Powell left the door open to at least one more rate cut in 2025.

The Fed Delivers a Long-Awaited Rate Cut

To virtually no one’s surprise, the Federal Reserve slashed the target on its key interest rate—the fed funds rate—at the conclusion of its meeting on Wednesday. The only question regarding the decision was whether the Fed would cut by a quarter point (25 basis points [bp]; 1 bp = 0.01%) or 50 bp. They opted for 25 bp and a new range of 4.00-4.25%.

Last CPI Tees Up Fed Rate Cut

The only thing that might have been standing in the way between the Federal Reserve and a rate cut this week was last Thursday’s release of the Consumer Price Index (CPI). While the inflation figures weren’t particularly soft, August’s data didn’t reflect a sharp rise in prices either, all but guaranteeing that the Fed will move at Wednesday’s meeting.