Nonfarm payrolls data came in hotter than expected, bolstered by other labor market indicators that suggest the FOMC won’t cut interest rates this year. The overall figure was more than double what was expected; unemployment fell to 4.1% and wages rose about 4%. Rising employment and wages signal that one Fed mandate has been met, but another still requires attention.
The only bad news is that manufacturing employment is down, but that’s a small slice of the economy that’s being offset by more government jobs and widespread service growth. Conclusion: Labor markets were stable at the end of 2024 and we are heading into a seasonally active hiring period. Employers will increase employment over the next few months to cover their needs for Easter, spring break and summer holidays.
The US labor market is strong, healthy and expanding
JOLTs, Challengers and Initial Claims data are consistent with labor market strength. JOLT jobs data rose nearly 400 basis points in November, defying expectations for a decline. This beat consensus and indicated there were enough job openings to drive economic growth.
Challenger’s December numbers are more interesting: They’re in line with this year’s trend and up from last year, but show a noticeable decline in layoffs in the fourth quarter compared to the previous quarter. While this is not a particularly optimistic signal, it does suggest that the end to recent labor market volatility is soon to come, and this is compounded by hiring data. Hiring plans for December were moderate at nearly 8,000, down from 403,000 in September, the strongest month of the year. However, they are in line with seasonal trends and in the middle of the expected range, with the pace of hiring expected to accelerate as Trump’s policies take effect.
The most recent and leading labor market data, initial jobless claims, is strong. Data released just days before the NFP report showed initial applications fell to long-term lows and total applications fell more than 2% from last year. This indicates a sharp decline in layoff activity at the end of the year, consistent with Challenger data indicating an end to labor market volatility and a strong foundation for labor market expansion throughout the year.
Ten-Year Treasuries Rise Sharply to Match Rate Forecast
The impact of the labor market data on the market is that the chances of lower interest rates, as indicated by the CME FedWatch Tool, are falling. There is less than a 50% chance of two cuts and one cut is doubtful, which is reflected in Treasury yields. The 10-year Treasury yield rose more than 100 basis points to a 52-week high.
The Treasury market is showing some signs of resistance at this level, but it may not last long if other data is strong. The next important piece of the puzzle is CPI and retail sales data, which should be available soon. Another month of hot inflation data could result in a rate cut and send TNX back to 5.0% or higher.
S&P 500 Index NYSEARCA: SPY retreated in response to the news, but this knee-jerk reaction will likely be seen in retrospect as a buying opportunity. Hot labor market data and the root cause, economic health and growth, fit consumer health, spending and S&P 500 earnings across all sectors. The critical support target is near the recent low at 5875 and is unlikely to be breached.
A more likely scenario is that the market will soon issue a buy signal, sending the S&P 500 higher and setting a new all-time high. The risk is that the FOMC will have to raise rates later this year to combat inflation, increasing the likelihood of an economic collapse and recession.
Before you consider the SPDR S&P 500 ETF Trust, you should hear this.
MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now, before the broader market catches on… and the SPDR S&P 500 ETF Trust wasn’t on the list.
While the SPDR S&P 500 ETF Trust currently has a Hold rating among analysts, the top-rated analysts think these five stocks are Outperform Buys.
View five stocks here
Discover the next wave of investment opportunities with our report, 7 Stocks That Will Be Great in 2025. Explore the companies poised to emulate the growth, innovation and value creation of the tech giants dominating today’s markets.
Get this free report