The Week in Review: January 13, 2025
A Wall Street vs Main Street Jobs Report
On Friday, the U.S. Bureau of Labor Statistics reported that nonfarm payrolls grew by 256,000 in December, easily surpassing analyst expectations of a more modest increase of 155,000 (Wall Street Journal). The unemployment rate eased to 4.1% last month from 4.2% in November. It has been hovering in a narrow range of 4.1 – 4.2% since June.
It was “good news is bad news” for investors on Friday.
First, let’s review Wall Street’s reaction. According to CNBC, the Dow fell 1.6% (697 points), and the S&P 500 Index lost 1.5% (91 points) amid rising bond yields and interest rate worries.
A stronger economy and a strong job market (good news) diminish the odds that the Fed will lower interest rates this year (bad news). Although a closely followed gauge by the CME Group currently puts the odds of a 2025 rate hike at 0%, a few are whispering about the possibility of a rate hike in 2025, especially if inflation ticks higher.
But what about Main Street? Main Street celebrates a strong economy and abundant jobs.
As the Wall Street Journal reported last week, it is not evident in every sector, such as information technology and the financial sectors.
However, the jobless rate is low overall, and the economy is creating employment opportunities. Sure, job growth is down from unsustainably strong levels when the economy was re-opening, but growth is respectable.
As we have previously observed and discussed, when markets are priced for perfection, any disappointment can lead to a reset of expectations and a decline in stock prices.
Yet, a strong jobs report reflects a strong economy. Any pullback resulting from a strong economy is preferred over a pullback stemming from unexpected economic weakness.
Furthermore, an upbeat economy underpins corporate profits (good news), and rising profits have historically supported stocks.
Profit growth is not always an immediate tailwind for equities, and rate worries are on the front burner right now, but historically, it has been a long-term driver of stocks.
Market Summary
TWO FOR THE ROAD
Historically, after two consecutive yearly gains of more than 20%, the average annual return for the S&P 500 has been a more modest 6.7%. - Barrons, January 2, 2025
According to a new study published by Neuron, human beings think at a rate of about 10 bits per second, and the amount of information they might learn in their lifetime would fit on a thumb drive. - Scientific America, December 17, 2024
Please do not hesitate to contact me with any questions or concerns.
I hope you have a great week!
Bill Stordahl, CFP®
Managing Director
Stordahl Capital Management
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1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.