Stocks jumped and dumped this morning as investors processed strong labor market data, impacting expectations for Federal Reserve interest-rate cuts. The Dow saw a slight decline of 0.1%, or about 60 points. The S&P edged up 0.1% while the tech-heavy Nasdaq Composite advanced by 0.2%.
Today’s intraday fluctuations followed the release of the December jobs report, which showed a higher-than-expected addition of 216,000 jobs, surpassing economists’ forecast of 175,000. The unemployment rate held steady at 3.7%.
Despite the strong headline payrolls number and a surprising jump in hourly earnings to 4.1%, a deeper dive into today’s jobs report reveals concerning aspects, especially under the market’s belief that a soft landing (or no landing, even) can be achieved. Notably, 10 of the last 11 job prints have been revised lower, raising questions about the December report’s accuracy.
Regardless of the headline number, underlying data from the report painted a bleaker picture: while the monthly nonfarm payrolls from the Establishment Survey indicated modest growth at 216K, the Household Survey showed a sharp decrease of 683K in the number of employed workers – the largest drop since the onset of COVID-19. This decline in employment, coupled with the stark divergence between the two surveys, underscores deeper labor market issues.
Moreover, the breakdown of job types revealed a shocking decline in full-time positions by 1.531 million in December, counterbalanced by a surge in part-time workers. The U.S. has seen a shift towards part-time employment since February 2023, with no net addition of full-time jobs, further complicating the employment landscape.
Multiple jobholders also surged by 222K, reaching a record high. This suggests that more workers are taking on multiple jobs to cope with economic conditions.
The labor market’s underlying weakness, especially in the full-time sector, casts a shadow on the optimistic headline figures and raises significant concerns about the real state of the job market.
Perhaps the most interesting (or concerning) stat from the December jobs report is that native-born US workers are now flat since 2018 while foreign-born workers continue to climb well above their 2018 highs. In other words, the vast majority of the market’s job gains have gone to foreign-born workers.
In other economic news, the Institute for Supply Management (ISM) reported a slowdown in services activity for December, with its PMI dropping to 50.6 from November’s 52.7. This indicates expansion but marks the lowest level of services activity since May.
Amidst these developments, US bond yields continue to rise, with the 10-year Treasury yield climbing 3.7 basis points to 4.04% after a significant surge on Thursday.
Apple shares dipped in afternoon trading as yields jumped, adding to losses that were sparked by downgrades from analysts concerned about iPhone sales. This, coupled with iPhone supplier Foxconn’s forecast of a revenue drop in the first quarter due to slowing market demand, adds to the challenges facing tech stocks.
In other words, despite the continued economic optimism, rising yields and tech challenges could squash bullish sentiment this month. The S&P is likely already in a major bearish reversal as well. That’s not to say we’ll see a massive crash this month, but traders may want to flip tactically bearish until the market shows signs of life again, which could be difficult after the enormous November/December rally pushed stocks so far into overbought territory.
