Stock Bull Run Powers Ahead as Economy Roars

What You Need to Know

Equities powered ahead Friday, led by a rally in the S&P 500’s most-influential group: technology.
Economic optimism is outweighing bets that the Federal Reserve will refrain from cutting rates in the first quarter.
The strong market gains remain at nearly unprecedented levels, says Mark Hackett at Nationwide.

The stock market extended this week’s gains amid a rally in big tech and as a solid jobs report bolstered the outlook for corporate profits.

Equities hit all-time highs, with the S&P 500 topping 4,965 and the Nasdaq 100 up nearly 1.9% as of 2.30 p.m. in New York, after bullish outlooks from Meta Platforms Inc. and Amazon.com Inc.

Economic optimism outweighed bets the Federal Reserve will refrain from cutting rates in the first quarter. Treasury two-year yields jumped 19 basis points to 4.39%. The dollar rose toward levels last seen before the Fed’s December “pivot.”

“Today’s jobs report calls into question the narrative of a ‘soft landing’,” said David Donabedian at CIBC Private Wealth U.S. “The January jobs report was pretty dramatic, implying there may be ‘no landing.’ The economy is ripping ahead.”

To Neil Dutta at Renaissance Macro Research, strong growth in labor productivity means unit labor costs are under control — which is a good backdrop for corporate earnings. “It’s hard to get too bearish” with such economic resilience, said Bret Kenwell at eToro.

Larry Tentarelli at Blue Chip Daily Trend Report sees the data as “a very bullish sign for the economy” — adding that “we are buyers on any short-term weakness in stocks.”

“Just as many were caught off guard by the recession that never appeared in 2023, there’s always the possibility that another year will go by without a recession,” said Chris Zaccarelli at Independent Advisor Alliance.

Nonfarm payrolls surged 353,000 last month following upward revisions to the prior two months.

The unemployment rate held at 3.7%. Hourly wages accelerated from a month earlier, increasing by the most since March 2022. Separate data showed US consumer sentiment surged in January from a month earlier by the most since 2005.

While signs of a strong economy may continue to bode well for corporate results, they would also be a factor delaying the Fed’s rate cuts.

“Well, I think we can officially kiss a March rate cut goodbye, and more than likely a May,” said Alex McGrath at NorthEnd Private Wealth.

Indeed, Treasury yields soared after Friday’s data strengthened the case for the Fed to defer cutting rates until at least the second quarter.

Swap contracts referencing the March Fed meeting date cut the odds of a quarter-point rate cut in half, to about 15% — while the May contract no longer fully priced in a cut, which it had for more than a month.

“Today’s report reinforces the narrative this week that the Fed does not need to rush into rate cuts,” said Jason Pride at Glenmede. “A March rate cut now appears increasingly unlikely. The more likely trajectory is two-three cuts this year beginning around summer.”

Seema Shah at Principal Asset Management remarks that it wasn’t just a strong January. It turns out that previous months were stronger than initially believed.

“The dramatic upside surprise to both jobs and wage growth means that a March rate cut must be off the table now, and a May cut is also now potentially on ice,” she noted.

Following Wednesday’s Fed decision, Powell said that a cut is unlikely to come at the next gathering in March, which some market participants had been betting on. The Fed chief will appear on CBS News’s 60 Minutes this Sunday to inflation risks, expected rate cuts and the banking system, among other topics, the network said.