Market Recap – Week Ending Dec. 6

Jobs Report Beats Consensus; CPI Release on Wednesday

Overview: Stocks in the U.S. notched their third consecutive week of gains last week as the S&P 500 rallied nearly 1%. After struggling to keep pace in recent weeks, foreign markets led the way higher as international developed (MSCI EAFE) and emerging market stocks (MSCI EM) finished the week better by about 1.7% and 2.5%, respectively. A better-than-expected jobs report on Friday helped bolster returns as the Labor Department reported the U.S. added a seasonally adjusted 227,000 jobs in November, beating consensus estimates of 220,000. However, the unemployment rate ticked higher from 4.1% to 4.2%, which could provide support for additional rate cuts from the Fed. Last week’s jobs report marks the final major labor market update ahead of the Federal Reserve’s final policy-setting meeting of 2024, which is set to conclude on Dec. 18. With just nine days left until the announcement, futures markets are pricing in an 85% probability of a 25-basis-point rate cut, which would leave the upper-end of the fed funds rate at 4.5% heading into year-end. In other central bank news, markets appreciated comments from President-elect Trump over the weekend, who said he will not try to replace Federal Reserve Chair Jerome Powell, whose term runs through May 2026. Looking ahead, investors will be focused on key inflation data later this week. Wednesday will bring the widely followed CPI inflation report, which is expected to show headline prices rose 0.3% in November, or 2.7% on a yearly basis. Core prices (which exclude food and energy) are expected to have risen 0.3% for the month, and 3.3% over the past year. Elsewhere, gasoline prices are fueling holiday cheer, averaging under $3/gallon nationwide. At just 9.6% of average hourly earnings, gas affordability is well below the 20-year average of 13.4%. If this trend continues to persist, it could provide a tailwind for consumers during the holiday season.

Update on Employment (from JP Morgan): The U.S. labor market, while having cooled from its red-hot state, has settled into a relatively healthy position. Following a month of hiring disruptions due to hurricanes and strikes, businesses added 227K jobs in November. However, the uneven nature of recent job growth has led many to question the true health of the labor market. 2024 employment growth has been concentrated in a few key sectors, primarily health care and government, which have contributed 41% and 21%, respectively, of this year’s job gains. Health care’s hiring dominance seems less concerning as the sector is still addressing pandemic-related backlogs. However, employment growth dominated by the public sector, which tends to see increased hiring later in the economic cycle, may be viewed as a warning sign. That said, there are important nuances to consider. Keeping in mind government employment currently accounts for 14.7% of total payrolls, its 21% share of total job growth, 90% of which has come at the state and local level, appears less troublesome. Moreover, the sector’s share of payrolls remains below its pre-pandemic (2014-2019) average of 15.3%, suggesting its recent outsized growth reflects the continued uneven normalization of the labor market post-pandemic. Outside of these two sectors, sluggish manufacturing activity has been a headwind. Still, some cyclical sectors, including construction, leisure and transportation have seen solid job gains this year. Despite data volatility, recent employment conditions and positive real wage gains have supported a resilient consumer and U.S. economy. With job openings back near pre-pandemic levels, this isn’t a labor market that is likely to boom, but it shouldn’t bust either. Steady economic growth and solid corporate profits should support a moderate pace of hiring in the year ahead.