Markets were shut on Thursday for a national day of mourning for former U.S. President Jimmy Carter. On Friday, a better than expected job openings reading for November 2024, along with a significantly stronger than anticipated nonfarm payrolls report for December 2024, suggested that the labor market had once again become highly resilient after showing considerable cooling in the middle of last year. For a Fed that wants to ease monetary policy, the data was a spanner in the works. For the week, the S&P slipped 1.9%, while the Dow also fell 1.9%. The Nasdaq Composite shed 2.3%.

As the Fed attempts to lower interest rates, the treasury market is behaving like a spoiled child. The 10 year Treasury yield rose to 4.77% this week, a whole percentage point higher than the level seen only a quarter ago, while the 20 year Treasury topped 5% for the first time since 2023. Concerns over the national debt and debt ceiling are at play, along with possible inflationary threats from a stronger economy.

The Fed meeting later this month could decide the direction of the market and treasury yields.

Future Wealth’s View

While the stock market sold off on the job openings data on concerns that an interest rate cut will likely not happen at the January Fed meeting, investors would be wise to look at the positive side – with a strong economy, US companies should continue to post good earnings which in turn will drive up stock prices. Earnings season starts next week with all the major banks reporting Q4 2024 results. That will be followed by the major tech companies and retail corporations. That will be followed by a new President taking office. We could be in for an interesting time in the stock market.

At Future Wealth LLC, we believe that investors would be astute to take advantage of any pullback in the stock market but choose wisely. If the earnings season comes out positive with the majority of the companies posting better than expected earnings, concerns over interest rates would take a back seat. The wild card, however, is rising treasury yields. When yields start to pass 5%, the spread becomes attractive to conservative investors who are likely to rotate from stocks to bonds as such putting a lid on the returns we could expect from the stock market.

Not the best start to the year so far but no reason to not be invested in the stock market.