Weekly Market Report: January 10th, 2025
Equity markets subscribed to a ‘good news is bad news’ narrative last week with healthy corporate earnings projections and a strong labor market adding support to the strong growth / Fed pause narrative, pressuring yields to the upside and stock prices downward. Global equity markets, including the U.S. closed down 0.5% to 2% with growth stock underperforming value stocks on the week. Bond yields reached their highest levels since October 2023 with the 10yr closing at 4.77% while the USD (+0.64%) and commodities (+3.13%) both moved higher.
Market Anecdotes
- The question of when stocks will become sensitive to higher bond yields grew louder last week amidst a backdrop of a shift back toward negative stock/bond yield correlations. Ultimately, a mix of fundamentals and market perceptions of prevailing inflation dynamics will dictate.
- The U.S. labor market was in focus last week with the JOLT and Employment Situation reports. The U.S. economy has added over two million jobs in the past year but the average time it’s taking the seven million “unemployed but searching” group has grown from five months to six months.
- Strong labor market reports last week, particularly Friday, led to a surge higher in interest rates and corresponding consolidation in equity markets. Higher market-based interest rates, less aggressive monetary easing, and a strong USD are working to tighten overall financial conditions.
- The question of what is driving bond yields higher points to both inflation concerns and increasing growth expectations with the latter arguably factoring more so than the former.
- FOMC minutes released last week echoed a more cautious approach toward easing but an easing bias, nonetheless. They have ample company in that mindset with 70% of Global central banks easing over the past three months with aggregate rates 550 bps lower.
- We are at the doorstep of 4Q earnings season with the S&P forecasted to post 11.7% growth, which would be its strongest mark since Q4 2021. Based on historical beat rates (75%) and margins (6.7%), it’s likely we may see a number closer to 14%.
- Elevated interest rates and have pushed corporate bankruptcies to their highest level (by issuer #) since the GFC despite nearly twice as many credit situations being addressed out of court, according to Fitch.
- Leuthold noted, thanks to a top-heavy December, year-end 2024 marked the only instance on record where 5 companies had 4% or greater weights in the S&P 500. It had been 2 or 3 for most of the past 5 years, including a peak of three way back in the tech bubble.
- Bianco Research reiterated a word of caution putting any weight in seasonal trends like the “January Effect” by highlighting January’s rank since 1928 (3rd best), compared to since 2000 (worst).
Economic Release Highlights
-
The December Employment Situation report for December showed 256k jobs, well above the spot consensus of 165k. The unemployment rate fell unexpectedly one tick to 4.1%. Average Hourly Earnings were in line with the forecast at 0.3% MoM and 3.9% YoY.
-
The November JOLT Survey reported 8.098M job openings, well ahead of the forecasted 7.650M and above the range of estimates (7.585M-7.800M).
-
The ISM Services Index for December registered 54.1, ahead of spot consensus 53.2
-
JP Morgan Global Composite (52.6) and Services (53.8) readings for December both came in slightly above consensus expectations.
-
UofM Consumer Sentiment reading for January registered 73.2, slightly below the forecast of 74.5 and oneyear inflation expectations increased notably from 2.8% to 3.3%. Long-term inflation expectations also jump 0.3% to 3.3%.
