- It was another down week for markets, partially driven by the December employment report on Friday. Nonfarm payrolls rose by 256,000 for December, soundly beating the consensus for 165,000. The unemployment rate dropped to 4.1%, and the change in average hourly earnings YoY was 3.9%.
- The employment report further solidified market pricing for the Fed to remain on hold, with futures now pricing in the first full cut in September although June remains slightly above 50% chance. For the January meeting, the chance of a hold rose to 97.3%.
- The solid payroll report unfortunately gave markets a “lose-lose” mentality, as the likelihood of “higher for longer” rates, drove both bonds and equities lower on the week. Prior to the payroll headlines, we saw markets buffeted by headlines that President-elect Trump’s tariff policy would be less onerous than feared, only to be followed up by a denial from Trump that he was considering a softer tariff policy. Headlines about Greenland, the Panama Canal, DOGE goals, and the U.S. deficit all hit the tape in a week without much in the way company fundamentals before 4Q24 earnings season kicks off this week.
- We sense that markets are entering a period of heightened volatility as impacts from policy changes to tariffs, taxes, labor/border controls, and government spending are all likely after the new Presidential Administration takes office next week, even as we continue to see solid underlying economic growth in the U.S.
- Equities continued their retreat, with technology and small caps leading the sell-off. In tech news, Nvidia (NVDA) rally turned into a selling opportunity after a disappointing product lineup launch at the annual CES conference. Separately, quantum-computing shares faced an even bigger backlash from the event as Nvidia’s CEO Huang commented that quantum computing was still 15-30 years away from commercial practicability, driving IONQ Inc (IONQ), D-Wave (QBTS), Rigetti (RGTI) all to shed nearly fifty percent of their value.
- In regulatory news, reports of additional Chinese market sale restrictions for U.S. semiconductor chip exporters weighted on shares of Nvidia (NVDA), Advanced Micro (AMD), and peers. In M&A, Constellation Energy (CEG) acquired the equity of power generator Calpine for $16.4 bn, as it adds capacity to attend high expected AI-related electricity needs, and Stryker (SYK) agreed to acquire Inari Medical (NARI) for $4.9 bn.
The Week Ahead
- For the week ahead, the focus will be on PPI and CPI data for December. PPI hits first, and is considered to be a leading indicator for CPI in the following months. December PPI Final Demand is estimated at 0.4% MoM and 3.5% YoY. PPI excluding food and energy is expected to be up 0.3% and 3.8% YoY.
- December CPI is estimated to rise by 0.3% MoM and 2.9% YoY. On a core basis excluding food and energy, CPI is forecast to rise by 0.2% MoM and 3.3% YoY.
- 4Q24 earnings season kicks off with earnings from all the major banks including JPMorgan Chase, Bank of America, Wells Fargo, Citi, BlackRock and others. As well, United Healthcare, Kinder Morgan, and Schlumberger, among others are set to report.
Market Summary – Returns and Yields
- A disappointing start to the year, with both bonds and equities down for the year-to-date in the first two weeks.
For additional insights, be sure to check out last week’s blog post.
Definitions, sources, and disclaimers
This content is being published by Amerant Investments, Inc (Amerant Investments), a dually registered broker-dealer and investment adviser registered with the Securities and Exchange Commission (SEC) and member of FINRA/SIPC. Registration does not imply a certain level of skill, endorsement, or approval. Amerant Investments is an affiliate of Amerant Bank.
Definitions:
- Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
- GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
- The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
- Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
- The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
- The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
- The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
- Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
- Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
- The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
- The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).
Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).
Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.
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