What a turn of events this morning. Investors went from quickly diving into why stocks were down, to asking the question: “Why are stocks up today?”
After all, data released from the December jobs report showed the economy added 216,000 in the final month of the year. These data suggest that the labor market remains strong, with the overall unemployment rate remaining at 3.7%. This number was also significantly higher than the projection of 175,000 job adds, which would have seen the unemployment rate tick up to 3.8%.
Accordingly, the initial knee-jerk response this morning was for bonds and stocks to decline in unison as interest rate cut expectations were pushed out. However, this move appears to now be fully reversed, with the U.S. 10-year Treasury yield dropping 3 basis points at the time of writing and all major stock indices higher.
Let’s dive into what’s driving this move.
Why Are Stocks Up Today?
The initial negative response from this print appears to be tied directly to the headline number. In general, if the economy is adding more jobs than expected, the Federal Reserve may likely have more work to do to tame inflation. This could mean higher for longer interest rates, which aren’t great for long-duration assets.
However, digging into the numbers, investors appear to be focusing on yet another big revision for previous months’ data, with the Bureau of Labor & Statistics continuing to revise previous job gains higher. Thus, if this trend continues, the 216,000 job gain number posted may not be real. That’s one angle that’s important to consider, and the market is certainly factoring this into its calculations right now.
Additionally, the sectors in which most jobs were added are in focus. Among the leading gainers were the hospitality industry (which can be argued is still recovering from the pandemic) and the healthcare industry (also recovering). In many respects, the areas of the job market that are still hot are areas where there have been continued labor shortages. Thus, the data perhaps speak to a normalization of the job market rather than an overheated one.
It’s important for investors to remember that this is just one data point. Certainly, today’s big dip after this release suggests that many are watching the same key data releases the Fed is. But we’re on the right track, and a soft landing and multiple rate cuts next year are still the base case for most investors. Thus, up we go.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
