Stocks enjoyed a nice strong week, until Friday when a stronger-than-expected jobs report pushed equities lower.
The simple explanation of that phenomenon is that investors are now less optimistic that the Federal Reserve will hold rates steady or even lower them in the very near future as the economy has remained stable with higher rates.
The central bank opted to raise interest rates by 25 basis points this week as it has cooled off on the acceleration of rate hikes but Fed Chair Jerome Powell said he expects a couple more rate bumps to go and that he doesn’t see the Fed cutting rates this year. The strong January Employment Situation Report, which was released just a couple days later, only stands to strengthen those positions.
Putting in that Work
Analysts expected the economy to add 190,000 jobs in January but it managed to crush those estimates with 517,000 jobs added last month. That number is up from the 260,000 that were added in December. Meanwhile, the unemployment rate fell from 3.5% to 3.4% while analysts predicted a bump to 3.6%. Finally, the average hourly earnings grew 0.3% after a 0.4% increase in December.
The jobs report capped off a pretty strong week for economic data as initial unemployment claims fell from 186,000 to 183,000 new claims while the consensus was for a rise to 201,000. The Employment Cost Index meanwhile fell from 1.2% to 1.0% in the fourth quarter, slightly lower than the projected 1.1% increase in compensation costs.
The strong week for new economic data was contrasted though by mixed earnings results from some of the world’s largest companies.
The biggest shock of the week was Meta Platforms (META) actually managing to post a strong earnings report that was headlined by the announcement of a $40 billion stock buyback plan. Investors reacted very positively to the news as Meta shares rose 20% after the report as the social media giant had struggled of late in its recent quarterly earnings. However, big tech was unable to continue that momentum with Amazon (AMZN), Apple (AAPL), and Alphabet (GOOG) all managing to miss on earnings estimates for their quarterly reports.
Amazon shares were hit the hardest, falling 8% despite surpassing revenue estimates as the company dealt with AWS slowdowns but strong retail performance. Meanwhile, Apple stock actually rose following its results as analysts reported they could look past the quarter with the company hitting an all-time high install base of 2 billion devices and saw strong growth in emerging markets.
Meanwhile, it couldn’t have been more opposite results from rival automotive manufacturers, General Motors (GM) and Ford (F). GM managed to surpass earnings and revenue estimates with strong EV results and its stock price rose over 8% following the report. Ford however, missed on its earnings projections and saw its share price fall nearly 8% with CEO Jim Farley saying that the company fell $2 billion short in 2022 and big changes will be made this year.
All in all, stocks enjoyed a positive week with the S&P 500 gaining 2.95%, the Dow Jones Industrial Average rising 0.62%, and the NASDAQ increasing 5.38%.