Key Takeaways
- Jobs Report Beats Expectations, Signaling Potential Inflationary Pressures Ahead.
- Bond Yields Rise, Highlighting Global Economic Divergences And Challenges.
- Earnings Season Begins Amid Inflation Concerns And Market Uncertainty
Markets were closed on Thursday in honor of Jimmy Carter’s passing. But Wednesday had a feel of markets being closed as stocks were little changed across the board. That looks like it will change today, looking at premarket futures, following the release of the December jobs report.
According to Bloomberg, economists were expecting 164 thousand new jobs to be created with an unemployment rate of 4.2%. The actual number was 256 thousand new jobs, and the unemployment rate ticked down to 4.1%. That is quite a bit stronger than forecast. October employment was revised slightly higher, while November was revised lower, resulting in 8000 fewer jobs than initially reported.
I have harped on bond yields in this column the last few weeks and I’m going to continue that today. Heading into the trading day, yields on the 30-year are at 4.99% and the benchmark 10-year, off of which most loans are based, is at 4.78%. The effect of those higher rates has sent mortgage rates to levels not seen since the summer, with the average 30-year mortgage at 6.93%. The rise in yields isn’t just a domestic issue. In the UK, the 30-year gilt is at 5.45% and the 10-year is 4.92%. That is the highest level since 2008.
Contrast U.S. and UK rates with China, where 10-year rates are hovering around 1.6% and you get a very mixed picture about the global economy. At the same time, the MSCI Emerging Markets Index has dropped 10% from highs reached in October, putting in correction territory.
What I believe all this means is, much of the world is fearing inflation while China, which has been struggling under the weight of U.S. imposed tariffs and concerns over additional tariffs, is at the exact opposite end of the spectrum as they are in a mode of looking for growth. The MSCI Emerging Markets Index is, in my opinion, confirmation of this global divergence. Put bluntly, as we head into earnings season, there are storm clouds on the horizon with inflationary concerns hanging over the world’s largest economy and recession fears plaguing the second largest. It remains to be seen how the new incoming Trump Administration’s policies will impact the global economic outlook.
Turning to earnings, Delta and Walgreens both announced results in the premarket, kicking off fourth quarter reporting. Delta beat on both the top and bottom-line thanks in large part to the last two months of 2024 where demand was strong. The airline also provided full year guidance that was better than expected. That stock is up nearly 8% in premarket trading. Walgreens Boots Alliance also beat their expectations. The company affirmed full year guidance and the stock is up 11% in premarket trading.
One group of stocks trading lower are insurers. As the horrific fires in California continue to wreak devastation, insurance companies have already doubled the estimated amount of damage from $10 billion to $20 billion and those estimates are expected to continue growing. Shares of Travelers and Allstate are indicated lower by 4% and 5%, respectively. This is just an absolute tragic situation and my thoughts are with everyone affected.
One good bit of news that emerged Thursday was an agreement which will avert a strike at ports along the East Coast. The International Longshoremen’s Association agreed to a deal that includes a 62% pay increase over the next six years. One thing I will point out with this is, these jobs can have a direct impact on trade and subsequently, inflation. Dockworkers make up a big part of our economic infrastructure and pay raises of this magnitude could affect the price of goods being both imported and exported. This is something to keep an eye on.
Another potential concern for inflation is oil. Crude oil prices are higher by more than 3.5% in premarket at almost $77 per barrel. As I mentioned on Wednesday, once oil prices reach $80, it becomes concerning as prices for consumers start taking a toll. Taken together with what we’re seeing with bond yields, along with today’s stronger than expected employment report, and I think it’s fair to say there is growing concern in markets about a return of inflation.
For today, markets are indicated to open lower following the better-than-expected jobs report. I suspect, as I mentioned above, we are going to begin hearing a lot more talk about inflation. After appearing to achieve a soft landing with respect to Fed, it seems we may not be out of the woods quite yet. Against that backdrop, next week is when banks will begin reporting earnings with Citigroup, Goldman Sach, JP Morgan and Wells Fargo all scheduled to report on Wednesday, before the open. I am going to be monitoring both oil prices and bonds. I believe those assets are probably where stocks are taking their cues at the moment, at least until next week’s earnings. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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