Below are the economic and market highlights for the week:
- The jobs market came in hotter than expected in December. Nonfarm payrolls soared by 256K, up from November’s 212K. The reading blew past economists’ estimates of 155K. Unemployment also moved lower, falling 0.10% to 4.10%. The underemployment rate, a broader based jobs metric that measures the percentage of employed people who are working part-time but prefer to be working full-time, also moved down, dropping 0.20% to 7.50% – its lowest since June 2024. The much watched average hourly earnings figure also rose 0.30% on the month, in line with forecasts.
- The services sector ended 2024 on a high note. The ISM Services Index rose to 54.1 in December, up from November’s 52. Numbers above 50 indicate expansion while those below signal contraction. New orders and production helped lift the headline figure. Prices, however, remained a sticking point as the barometer of prices that measures what businesses pay for supplies rose to a nearly two-year high of 64.4 in December.
Bulls Suddenly Scared of Growth
Stocks continued to lose momentum to start the new year. A stronger than expected jobs report coupled with a stubborn December ISM prices gauge served up an arctic blast to the prospects that the Federal Reserve would continue cutting rates in 2025. The release of December’s FOMC minutes showed nearly all Fed officials were concerned inflation will be higher than expected, fueled in part by Trump policy plans for tariffs and resurgent demand. Friday’s jobs numbers sent the Dow Jones Industrial Average tumbling nearly 700+ points during the trading session. Bond markets also moved on the news with the 10-year treasury yield spiking to 4.90%, its highest level since late 2023.
2025 may not be the cakewalk bulls had spent the final months of 2024 expecting it to be. The positives of a strong economy and pro-domestic growth policies from the Trump administration have started to become overshadowed by the reality that rates may not fall as much as anticipated because of that very growth and the inflationary pressures the policies and economic momentum may create. The ISM Services report showed companies still remain optimistic that tax cuts and a rollback in regulations will boost demand, but uncertainty over trade policy and the Fed’s rate path could curtail business investment. Whereas “higher for longer” may have been palatable to markets so long as earnings were improving, inflation was falling and the Fed was penciling in 3 rate cuts. Investors have now begun to question whether the resistance to central bank cuts at the intermediate and long end of the rate curve is indicative of looming macro concerns and lower corporate profits. Nearly $4 trillion in corporate debt and another $4.5 trillion in Federal debt will mature over the next 3 years at rates almost 3-4% higher, squeezing margins and Federal coffers. This pressure on margins and creditworthiness comes as valuations are already stretched. The S&P 500, as a group, trades at 25x the trailing twelve months (TTM) earnings – well above 18-20x generally considered normal. Concentration risk also remains high within the index. Big tech makes up 29.3% of the S&P 500 by weight but accounted for half of the index’s total gains last year. Those gains might well be justified in the long term, but quick gains are often volatile in the shorter term. 2025 marks the third year of the current bull market which, from a historical standpoint, tends to be a lower returning year. Using historical data going back to WWII, the average third year return of a bull market tends to be only 2-3%. Notably, the odds of an intra-year correction (-10% plus drop) also increases in year 3, jumping to 75%. With broader equity markets having delivered 20%+ back-to-back annual gains, investors should remain grounded in their expectations for 2025. It is worth mentioning, however, that while we’d expect 2025 to feel challenging at times, those bull markets which manage to survive to a third year tend to continue upwards for another four years, bringing the average total life of a bull market having made it to year 3 to that of more than seven years. That is a mouthful, and while this week’s sell off felt like a slight recalibration, the data and broader trend itself still points upwards.
The Week Ahead
The Street dives through the latest inflation and retail sales reports.
A Brief Survival Guide to Prepare and Protect Your Finances
We have recently witnessed several natural disasters in the U.S., including this week’s devastating fires in California, hurricane-related flooding in North Carolina this past fall, and currently a large swath of the country from the Rockies to the East Coast is experiencing the biggest winter storm in several years. These occurrences serve as a powerful reminder to safeguard our homes and loved ones to ensure our financial security is resilient in the face of events that can damage homes and property and be devastating — both emotionally and financially.
Our advisors recommend five things to help you and your family be prepared and protected:
1. Have an Emergency Fund
An emergency fund provides a financial safety net, allowing you to cover unexpected expenses such as temporary housing, evacuation costs, or repairs which is essential for maintaining stability during a disaster. Keep your emergency fund in a bank account and also store cash in a secure place at home. During serious weather events, many areas may be without power for days, and banks and ATMs may not be accessible, so having cash on hand in small bills can help cover groceries, gas, and other immediate needs.
2. Keep Good Records
Making a list of every item of value in your home can be an exhausting and daunting task. However, recording a video of your home on your phone can be relatively quick. As you record your belongings, narrate your video by stating details about each item, including price, brand, and date and place of purchase. Scanning physical documents (like important papers, photos, or legal documents) into digital files and then storing those files on a remote cloud storage service is a crucial safeguard against data loss that may be caused by natural disasters. Some people rent a safe deposit box at a bank for important documents and valuables, while others prefer to keep items at home in a fire-resistant safe. If you live in a flood-prone area, you may want to invest in something that is waterproof as well as fire-resistant.
3. Establish Direct Deposit and Automatic Bill Pay
In the event of a disaster, you might not have regular access to your bank or the ability to manually pay bills. Establishing direct deposit for your paycheck and any other sources of income is a crucial step in preparing for a natural disaster as it ensures you have immediate access to your funds, even if banks are temporarily closed or ATMs are unavailable, allowing for a consistent cash flow during a crisis. Automating bill payments ensures your financial obligations are met even when you’re not able to manage them personally, helping you avoid late fees and stay on top of household finances.
4. Check Your Insurance
Insurance is your first line of defense against the financial impact of a natural disaster. Ensuring that your coverage is up-to-date and adequate can save you from significant out-of-pocket expenses. Homeowners insurance doesn’t necessarily cover everything Mother Nature could conjure up, and many homeowners may not know what their policy covers. Review your policy carefully to ensure you have adequate coverage. One of the most common claims not covered by many policies is flood insurance, so you should speak with your insurance agent to determine if your policy might need to be revised.
5. Make an Emergency Plan
Prepare for the types of emergencies most likely to happen where you live and, if you are a business owner, where your business is located. According to the Insurance Information Institute, about 25% of all businesses affected by a major disaster never reopen. The Federal Emergency Management Agency (FEMA) provides helpful advice for individuals, families, and businesses at www.ready.gov to prepare for a wide range of natural and manmade disasters, and the newly updated FEMA App offers preparedness strategies and real-time weather and emergency alerts.