Market Update – January 13th, 2024

Financial Markets

The week was shaped by Thursday’s market closure in honor of the late President Jimmy Carter, followed by a strong December employment report that sent stocks lower on Friday. The robust jobs data, while positive for the economy, was interpreted as negative for markets, as it signaled that the Federal Reserve may be slower to cut interest rates moving forward. As of Friday, January 10th, the S&P 500 declined -1.94%, the Nasdaq Composite fell -2.34%, and the Dow Jones Industrial Average dropped -1.86% in the week. Bonds also faced losses as rising rates, such as the 10-year Treasury yield, pushed the Barclays Aggregate Bond Index down by -0.9% for the week.

Source: Zacks

Market News

December Jobs

Stocks fell sharply on Friday after a much stronger-than-expected December jobs report, heightening concerns that the market’s desire for rate cuts may go unmet. Robust economic data, like this latest report, suggests less urgency for the Federal Reserve to ease rates, adding to uncertainty about monetary policy changes in 2025.

Diving into this month’s data, December’s unemployment rate fell to 4.1%, where it has remained between 4.1% and 4.2% for the past seven months. Non-farm payrolls surged by 256,000, significantly exceeding expectations, with job growth driven by healthcare, government, social assistance, retail trade, and leisure and hospitality. Wage growth rose 3.9% year-over-year, outpacing inflation, while the average workweek held steady at 34.3 hours for the fifth straight month. This continued labor market strength underscores the challenge of justifying further rate cuts.

Source: US Bureau of Labor Statistics

Beyond the drop in stocks last week, the market’s forward-looking projections also shifted due to this stronger-than-expected labor market data. The probability of no rate cuts in 2025 has risen to 29.9%, compared to just 16% the week prior.

Source: CME Group, as of 1/13/25

ISM Services

The ISM Services Index for December 2024 rose to 54.1%, signaling continued expansion in the U.S. services sector for the sixth straight month. Notable components include the Business Activity Index at a bullish 58.2%, reflecting strong current activity, and the New Orders Index at 54.2%, highlighting steady growth in demand. Additionally, the Employment Index registered at 51.4%, indicating healthy employment dynamics in the sector. This data underscores resilience in the services economy, another expansionary data point, which may delay further rate cuts from the Federal Reserve in 2025.

Source: Institute for Supply Management

Consumer Sentiment

The University of Michigan’s preliminary Consumer Sentiment Index for January declined by -1.1% from December and -7.3% from a year ago, marking a softer month in an otherwise upward trend over the past two years. Assessments of personal finances showed improvement, rising 5%, but this was offset by a -7% drop in short-term economic outlooks and a -5% decline in long-term expectations.

Consumers also voiced heightened concerns about inflation, with year-ahead inflation expectations climbing sharply from 2.8% in December to 3.3% in January, the highest level since May 2024.

Source: University of Michigan

Consumer Credit

In November, consumer credit outstanding declined by -1.8% from a year ago, totaling $5.1 trillion. This drop was driven by a sharp -12% year-over-year decrease in revolving credit, which includes credit cards and personal lines of credit—financial tools often used by consumers when cash is tight. Notably, this decline occurred during the start of the holiday spending season, a time when consumer debt typically increases.

Despite the drop in balances, interest rates remain elevated. The average rate for a 60-month new car loan stands at 7.82%, while credit card and personal loan rates average 21.47% and 12.32%, respectively. This month’s consumer credit report paints a unique picture of declining revolving debt balances alongside persistently high borrowing costs.

Summary

Stocks declined last week, driven by strong labor market data that raised concerns the Federal Reserve may cut rates less aggressively in 2025. The ISM Services Index continued to reflect economic strength, while sentiment dipped in January due to less optimistic near- and long-term economic outlooks and heightened inflation concerns. Meanwhile, consumer debt outstanding declined year-over-year, as high interest rates on items like car loans persist.

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Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

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