Summary and Price Action Rundown
US equities chugged higher today as January’s highly-anticipated jobs report evidenced modest improvement but missed estimates, pulling the dollar off its recent multi-month highs. The S&P 500 added 0.4% to register its second consecutive record close, bringing the ascent for the index to 4.7% on the week and 3.5% year-to-date. The Euro Stoxx Index posted similar gains, while Asian equities were mostly higher overnight. A broad dollar index retreated from its strongest level since early December after the moderately disappointing payroll figure, while longer-dated Treasuries remained under slight pressure, with the 10-year yield climbing to 1.17%. Brent crude advanced above $59 per barrel, spurred on by continued OPEC+ supply curbs and growing optimism over the demand outlook.
Nonfarm Payrolls Show a Tepid Jobs Rebound
After upside surprises in ADP payrolls and initial jobless claims data earlier this week, hopes had been raised for a more upbeat January jobs number. In January, the US economy added 49K jobs, missing the consensus estimate of a 100K rise. In December, COVID restrictions on businesses started to ease as case numbers and hospitalizations decreased and vaccine distribution increased. Last month saw notable job gains in professional and business services and both public and private education were offset by losses in leisure and hospitality, retail trade, health care, as well as transportation and warehousing. However, it is a small gain leaving the economy about 10 million jobs short from the peak in February 2020. Additionally, the change in total nonfarm payroll employment for November was revised down by 72K to 264K, and the change for December was revised down by 87K to -227K. With this, employment in November and December combined was 159,000 lower than previously reported.
Average hourly earnings rose by 6 cents to 29.96 or 0.2% after a 1% increase in December, below market expectations of a 0.3% gain. Average hourly earnings of private sector production and nonsupervisory employees did not change much at $25.18. The large employment fluctuations over the last few months complicate the analysis of recent trends in average hourly earnings, especially in industries with lower-paid workers. Year-on-year average hourly earnings have increased by 5.4%, the same as in the month before and above market expectations of 5.1%. – MPP view: This modest downside miss does little to dispel the overall impression that the US economy is leaning into the recovery before the double doses of stimulus are even really making much of an impact. The outsized move in the dollar seems to be more about trading dynamics after its sharp bounce rather than broader doubts about the US growth rebound, as the Treasury yield curve continued to steepen and the growth-sensitive Russell 2000 small caps outperformed meaningfully today, rising 1.4% to put year-to-date gains at a gaudy 13.1%.
Progress Toward Super-Sized Pandemic Relief Bill
The Biden administration and Congressional Democrats move ahead with unilateral approach to the American Rescue Act. After a night-long slog of partisan amendments, the Senate approved 51-50 a measure, with minor amendments, allowing Democrats to pass Biden’s relief plan through budget reconciliation. Votes for the measure fell strictly along partisan lines, with Vice President Harris casting the tie-breaking vote. Small amendments, including holding off on minimum wage increases and ensuring that wealthy Americans do not receive the $1400 stimulus payments, were added during the session, though none remain binding. The measure now returns to the House for a vote on the amended measure and, if passed, will proceed to the indicated committees for finalization by March. President Biden plans to meet with House Committee Chairs today to discuss the timeline of his rescue plan. The President spoke today emphasizing that the COVID-19 relief bill stands as a higher priority than bipartisanship, offering his strongest criticism of Republican lawmakers since taking office and indicated that the Democrats would go it alone. if necessary, to get needed aid to struggling Americans. Speaker Pelosi has stated that the budget resolution will be brought to the floor later today and that committees will begin working on the specifics of the bill starting Monday. Democratic leadership is pushing aggressively for the bill’s speedy passage in the wake of poor unemployment figures from December and standstill numbers in January. The US economy remains 9.9 million jobs below its pre-pandemic level. – MPP view: Though not every penny is likely to make it through, the Biden administration has strongly committed to the upper end of its stimulus spending range and put the marker down that it will aggressively pursue its legislative agenda, and so far it appears that Dem moderates like Senator Manchin are disinclined to stand in the way, all of which is positive for stocks and growth.
Earnings Season Continues to Provide Little Direction for Stocks – Fourth quarter (Q4) corporate results continue to be overshadowed by overarching market themes, like the GameStop episode and the brightening growth outlook, and today’s calendar is light. Next week features the last major concentration of reports, with Twitter, GM, Coca-Cola, Disney, and Expedia among the most high-profile. With 292 of the S&P 500 companies having reported Q4 results so far, 74.7% have topped sales expectations and 81.2% have beaten earnings estimates, continuing the pandemic trend of overly conservative analyst forecasts. To this point, however, upside surprises on these quarterly figures have provided scant support for stock prices, though this week featured broadly more upbeat price action amid the waning volatility in short-squeeze stocks and better-than-expected growth data.
Regulators Focus on GameStop – Yesterday, Treasury Secretary Yellen convened a group of regulators, including the heads of the SEC and CFTC, as well as the Federal Reserve and New York Fed, to consider the proper policy response to this high-profile episode of significant market anomalies. Though no specifics of the meeting were published, a statement released by the Treasury indicated that the group would work to ensure that the events around GameStop and other affected stocks “are consistent with investor protection and fair and efficient markets” while characterizing market functionality during the episode proved “resilient.” Meanwhile, the House Financial Services Committee and Senate Banking Committee are preparing to hold hearings on this issue later this month. – MPP view: We certainly do not expect any hasty conclusions from regulators but we do expect meaningful follow-though and a policy direction that takes a more encompassing look at the evolution of systemic risk in the system, as well as considers specific regulatory fixes for discrete market issues, such as IPO allocations and retail investor protection.
Latest Podcast – On this week’s Macrocast, we unpack the complicated jobs report, discuss the Biden stimulus package and its critics, and take a moment to review the Trump economy — including discussing how the jobs numbers would have played out in an alternate universe with no pandemic. We also chat about the potential for a pandemic-related baby bust and its economic impact. Latest Macrocast
Looking Ahead – Next week, the focus will be on efforts to pass the American Rescue Act through the narrow straits of the slim Democratic majorities in both houses of Congress. On the data front, US inflation figures will be in the spotlight as market-based gauges of inflation expectations advance to multi-year highs.