Another Blowout Jobs Report: Have We Entered The Monetary Metaverse?

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Brian Evans and Lisa Kalia Han of CNBC report the S&P 500 closes at a record, rises for a fourth-straight week on strong tech earnings:

The S&P 500 notched a fresh record high on Friday as quarterly results from technology companies including Facebook-parent Meta topped expectations and the January jobs report came in much better than expected.

The broad market index added 1.1% to close at 4,958.61, above its previous record close of 4,927.93 reached on Monday. The Dow Jones Industrial Average added 134.58 points, or 0.4%, to 38,654.42, also a record close. The Nasdaq Composite climbed 1.7% to 15,628.95.

Shares of Meta popped more than 20% after the social-media giant’s quarterly results topped analysts’ expectations. The Facebook-parent also announced it will pay a quarterly dividend for the first time, and it authorized a $50 billion share buyback program. Amazon shares jumped 7.9% on a fourth-quarter earnings beat.

The rise in tech stocks helped shift investor focus from a scorching jobs report earlier on Friday that spiked interest rates. The benchmark 10-year Treasury yield jumped a whopping 17 basis points to 4.02% after the government reported the U.S. economy added 353,000 jobs in January, well above the Dow Jones estimate from economists of 185,000. (1 basis point equals 0.01%)

“The price action today is a display that tech can decouple from the rates narrative and trade more on fundamentals,” said Dylan Kremer, chief investment officer of Certuity. “You’re in this window where tech can trade higher despite where rates are going, and that’s catching people off guard.”

The report also included inflationary data in the form of greater-than-expected wage growth. Wages expanded by 4.5% year over year, more than a 4.1% forecast. This report and comments from Fed Chair Jerome Powell on Wednesday likely pushes the chances of a rate cut back to May or the second half of the year.

Along with surging rates, the market also shook off tepid Apple quarter. The shares sat out the Friday rally and closed essentially flat after the iPhone juggernaut posted a 13% sales decline in China.

For the week, the S&P 500 added 1.4%, the Nasdaq Composite gained 1.7% and the Dow rose 1.5%. It was fourth-week in a row of gains for the major benchmarks after a stumble to start 2024.

It's Friday and every retail and institutional trader is thinking the same thing: "Damn, I should have bought the dip in Meta shares back in October 2022:

Mark Zuckerberg saw a $28 billion windfall after shares rocketed today, placing his net worth at $165 billion.

The rally in Meta's shares was astounding, the biggest market cap gain in history among all the big tech megacaps:

It's fair to say that Big Tech earnings led by Meta, Amazon and Microsoft have pretty much crushed expectations and flattened bears:

Another thing that crushed expectations was this mornings' red-hot US jobs report with nonfarm payrolls expanding by 353,000 for the month, better than the Dow Jones estimate for 185,000:

“This just reaffirms that the jobs market is entering 2024 on solid ground,” said Daniel Zhao, lead economist at Glassdoor. “The fact that job growth was so widespread across industries is a healthy sign. Coming into today’s report, we were concerned about how concentrated jobs were in really just three sectors — health care, education and government. While it is great to see those sectors drive job gains, there was no guarantee that would be enough to support a health labor market.”

The report also indicated that December’s job gains were much better than originally reported. The month posted a gain of 333,000, which was an upward revision of 117,000 from the initial estimate. November also was revised up, to 182,000, or 9,000 higher than the last estimate.

While the report demonstrated the resilience of the U.S. economy, it also could raise questions about how soon the Federal Reserve will be able to lower interest rates.

“Make no mistake, this was a blowout jobs report and will vindicate the recent posturing by the Fed which effectively ruled out an interest rate cut in March,” said George Mateyo, chief investment officer at Key Private Bank. “Moreover, strong job gains combined with faster than expected wage gains may suggest an additional delay in rate cuts for 2024 and should cause some market participants to recalibrate their thinking.”

Indeed, the yearly gain in average hourly earnings is raising the specter that inflation expectations will pick up in the second half of the year, making the Fed's job that much more challenging.

But despite widespread gains, the report has some concerns too:

A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons edged higher to 7.2%. The household survey, which measures the number of people actually holding jobs, differed sharply from the establishment survey, showing a decline of 31,000 on the month. The labor force participation rate was unchanged at 62.5%.

One potentially important caveat in the report could be the divergence between average hourly earnings and hours worked. Retail trade saw a fresh historical low of 29.1 hour in data going back to March 2006.

“This suggests that employers chose to reduce hours rather than resort to layoffs for the moment,” the Conference Board said in a report analysis.

Broader layoff numbers, such as the Labor Department’s weekly report on initial jobless claims, show companies hesitant to part with workers in such a tight labor market.

Some economists and traders are not buying all the good news:

Clearly there are major discrepancies between the establishment survey and the household survey but for now, people treated this report like another blowout jobs report:

And coupled with strong GDP growth, there are no signs of a cooling economy:

Gross domestic product growth also has defied expectations.

The fourth quarter saw GDP increase at a strong 3.3% annualized pace, closing out a year in which the economy defied widespread predictions for a recession. Growth in 2023 came even as the Fed further raised interest rates in its quest to bring down inflation.

The Atlanta Fed’s GDPNow tracker is pointing toward a 4.2% gain in the first quarter of 2024, albeit with limited data of where things are heading for the first three months of the year.

The economic, employment and inflation dynamics make for a complicated picture as the Fed seeks to ease monetary policy. Earlier this week, the Fed again held benchmark short-term borrowing costs steady and indicated that rate cuts could be ahead but not until inflation shows further signs of cooling.

All this of course argues against Fed rate cuts in March and maybe even in May!

But the longer rates stay elevated, the greater the probability something breaks in the global economy which is why some top economists are warning of a hard landing ahead:

I would caution readers to really think their scenarios through here because risks of a hard landing are going up, not down.

It is also an election year, the federal government is spending money like a drunken sailor but there's a limit to all this fiscal profligacy.

And then there is the potential of a widespread conflict in the Middle East.

As I finish this comment, the US is retaliating against Iran for the drone attack that killed three US service members.

When you add geopolitical risk to other risks, not exactly a good scenario for risk assets.

Below, CNBC's Rick Santelli joins 'Squawk Box' to break down the January jobs report. Santelli with University of Chicago Professor Casey Mulligan, joined 'Power Lunch' to discuss bond yields rising after today's jobs report.

Next, Jeffrey Rosenberg, a senior portfolio manager at BlackRock Inc., says there is a lot of seasonality in the January jobs report. He also says it's now time for investors to buy the front-end of the US Treasuries curve. He's on "Bloomberg Surveillance."

Fourth, Tom Lee, Fundstrat Global Advisors managing partner, joins 'Closing Bell' to discuss the Fed decision and market reaction.

Fifth, Brad Gerstner, Founder and CEO of Altimeter Capital, joins CNBC's 'Halftime Report' to discuss Meta's surge after earnings, what he sees next for the stock, and more.

Sixth, Evercore ISI Chair Ed Hyman says a US recession is coming but not until the third quarter on Bloomberg Television.

Lastly, Lawrence H. Summers, Former US Treasury Secretary says the strength of the economy and its lack of sensitivity to interest rates justifies the Federal Reserve signaling a March rate cut is off the table. He speaks on Bloomberg Television's Wall Street Week with David Westin.

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