Slow(er) Ride to Rate Cuts

While focus remains on when the Fed will start cutting rates, history suggests other factors must be looked at when assessing forward stock market performance.

This report has a smorgasbord of topics, including the latest Fed meeting, thoughts on market performance around Fed cycles, the blowout January jobs report, corporate earnings, and the relationship between bond yields and stocks. Strap in.

For our detailed commentary on the January Federal Open Market Committee (FOMC) meeting, see this from our posting last Wednesday. The net is that Fed Chair Jerome Powell was very clear that the Committee's bias is against initiating rate cuts as soon as the March FOMC meeting. Friday's release of the Bureau of Labor Statistics (BLS) jobs report for January likely cemented a later start to rate cuts this year.

We won't deep-dive the jobs report in this report, but here are the salient details:

  • Payrolls were up 353K, well above expectations, with broad-based strength across sectors.
  • Annual benchmark revisions suggest recent job growth has been stronger than initially expected.
  • Household employment was negative again, but stripping out new BLS population controls yields a healthy increase.
  • The unemployment rate remained steady at 3.7% alongside a rise in labor force participation.
  • Wage growth picked up, but there was a decline in average weekly hours worked (perhaps due to unseasonably cold weather around the country).