Halyard’s Weekly Wrap – 02/04/22
The January employment report did little to quell the frazzled nerves of investors. Following the ADP employment number, which showed a contraction of -301,000 on Wednesday, the street was prepared for a negative non-farm payroll print this morning. Especially given that Labor Secretary Marty Walsh and White House Press Secretary Jen Psaki delivered warnings that the report may be a bad one due to the spike in virus cases. In fact, the BLS said the economy added 467,000 new jobs for the month, a number greater than any of the 23 economic forecasters surveyed by Bloomberg. Anyone who watches economic data long enough knows that the devil is always in the detail, and this report was no different. Apparently, looking through to the seasonal adjustment employed to “smooth” the series, the actual number would have been much closer to trend. Moreover, the BLS did their 10-year lookback adjustment in January, which further muddied the final number.
Nevertheless, investors took the report to be unambiguously positive for the economy, and another reason for the Fed to raise interest rates in March. Currently, the Fed Fund futures market is pricing in a 70% chance of a 50 basis point at the next meeting. The two-year note closed the week at 1.31%, 16 basis points higher than last Friday’s close. The S&P 500 is quietly closing out the week after suffering volatility spikes since the first of the year. Of course, the biggest news of the week was the 25% market cap drop in Facebook parent, Meta. Unlike Meta, Amazon’s earning far exceeded expectation, sending that stock soaring.
Also of note, crude oil rallied through $92 per barrel, which is not likely to help the Fed in their push to bring inflation under control.
Next week brings the release of the consumer price index which is expected to show that inflation rose 7.2% compared to the same month last year. Also coming next week is the University of Michigan survey of 1 year inflation expectations, which registered 4.9% last month. This survey has gained added importance as economists look for signs that consumer’s outlook goes from transitory to engrained.