Weekly Market Update: January 16, 2024
The nation created an estimated 216,000 jobs in December. That total exceeded the consensus expectation of 171,000 and was the best figure since the September gain of 262,000. In total, nonfarm payrolls rose by an estimated 2.7 million positions in 2023. The unemployment rate ended the year at 3.7%.
The solid December employment figures, along with the minutes from the latest Federal Open Market Committee (FOMC) meeting, threw some cold water on the recent dovish monetary policy talk on Wall Street. Although inflation showed signs of easing over the final months of 2023, the hourly average annual wage rose 0.4% and 4.1% on month-to-month and one-year bases, respectively, in December. Both those readings were above forecast and, along with the drop in the labor force participation rate (a sign fewer people are looking for a job), suggest that inflation in the labor market may remain sticky.
Treasury market yields moved higher on the employment data. The rate on the 10-year Treasury note, which had fallen by more than a full percentage point during the final two months of 2023, retraced some of that decline at the start of 2024, briefly moving above 4.00%. With senior Fed officials still of the mindset that interest rates will need to stay high to effectively fight inflation, and the economy seeming likely to avoid recession, we are not in line with those on Wall Street expecting six or more cuts this year. If the central bank does begin lowering rates in 2024, we think three or fewer quarter-point cuts are likely, and not until the second half of the year.
Meantime, the recently commenced fourth-quarter earnings season will be closely watched. That is because with stock market valuations looking elevated entering 2024, Corporate America will need to demonstrate continued profit growth to justify the higher price-to-earnings multiples. That said, earnings growth for S&P 500 companies, which topped 8% in the third quarter, was estimated to have slowed to a low-single-digit pace in the final period of 2023.
Conclusion: With Treasury market yields moving higher to start the new year, we continue to recommend investors maintain a portfolio consisting mostly of high-quality stocks and cash-equivalent securities.