January jobs report throws a wrench into things

It is only fitting that a huge week of news culminates with earnings reports from some of the market’s biggest companies and the most closely-watched economic report of all: the Employment Situation Report.

Apple (AAPL), Amazon.com (AMZN), and Meta Platforms (META) all reported their quarterly results after yesterday’s close. ExxonMobil (XOM) and Chevron (CVX) reported their quarterly results before today’s open. The individual responses to these reports have been mixed, but they have also been clear.

Apple is down 3.5%, tripped up by weak sales in China and a relatively disappointing iPhone sales outlook for fiscal Q2. Amazon.com is up 6.3%, bolstered by impressive growth across all key metrics. Meta Platforms is soaring 17% after an eminently impressive earnings report replete with a $50 billion increase to its share repurchase plan and the initiation of a quarterly dividend of $0.50 that is drawing in a new class of investors. ExxonMobil is down 0.9% with Q4 revenues missing expectations. Chevron is up 0.7%, also missing on revenue estimates but announcing an 8% increase in its dividend.

The equity futures market fed largely off the gains in META and AMZN, which had their own halo effect, ahead of the January Employment Situation Report. For instance, the S&P 500 futures were 0.6% above fair value, and the Nasdaq 100 futures were 1.1% above fair value.

The employment report, however, threw a wrench into things when it showed headlines for the key metrics — nonfarm payrolls, private sector payrolls, the unemployment rate, and average hourly earnings — that were stronger than expected (much stronger for the payrolls data).

It also threw a wrench into things, because the report had a few quirks, namely a notable drop in the average workweek to 34.1 hours from 34.3 hours, benchmark revisions that showed nonfarm payroll employment in November and December combined 126,000 higher than previously reported, and updated population estimates that decreased the estimated size of the civilian noninstitutional population by 625,000 and the civilian labor force by 299,000 in December.

In brief, there were a lot of moving parts to this employment report that will take the market added time to digest.

The key takeaway, though, is that it is apt to be construed by the Fed as a report that, on balance, fits its current base case for seeing a March rate cut as unlikely.

The Treasury market’s knee-jerk reaction seems to think as much, too. The 2-yr note yield is up 20 basis points to 4.39% and the 10-yr note yield is up 15 basis points to 4.01%. The fed funds futures market sees it that way, too. The probability of a rate cut in March has been reduced to 19.5% from 38.0% yesterday; however, the probability of a rate cut in May has also been reduced to 71.9% from 93.8% yesterday.

The pop in rates has reined in the equity futures market some. Currently, the S&P 500 futures are up one point and are trading roughly in-line with fair value, the Nasdaq 100 futures are up 64 points and are trading 0.4%, above fair value, and the Dow Jones Industrial Average futures are down 114 points and are trading 0.3% below fair value.

 Notable headlines from the January Employment Situation Report:

• January nonfarm payrolls increased by 353,000 (Briefing.com consensus 175,000). The 3-month average for total nonfarm payrolls increased to 289,000 from 227,000. December nonfarm payrolls revised to 333,000 from 216,000. November nonfarm payrolls revised to 182,000 from 173,000.
• January private sector payrolls increased by 317,000 (Briefing.com consensus 150,000). December private sector payrolls revised to 278,000 from 164,000. November private sector payrolls revised to 152,000 from 136,000.
• January unemployment rate was 3.7% (Briefing.com consensus 3.8%), versus 3.7% in December. Persons unemployed for 27 weeks or more accounted for 20.8% of the unemployed versus 19.7% in December. The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.2% versus 7.1% in December.
• January average hourly earnings were up 0.6% (Briefing.com consensus 0.3%) versus 0.4% in December. Over the last 12 months, average hourly earnings have risen 4.5%, versus 4.3% for the 12 months ending in December.
• The average workweek in January was 34.1 hours (Briefing.com consensus 34.4), versus 34.3 hours in December. Manufacturing workweek was unchanged at 39.8 hours. Factory overtime was dipped 0.1 hour to 2.7 hours.
• The labor force participation rate held steady at 62.5%.
• The employment-population ratio increased to 60.2% from 60.1% in December.

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Originally Posted February 2, 2024 – January jobs report throws a wrench into things