Will January's better-than-expected jobs report be a blessing for the stock market or a new problem, especially since Fed officials don't expect a rate cut in early 2024?
Sonia Meskin, Head of US Macro at BNY Mellon Investment Management, analyzes January's labor print and key economic trends shaping up in 2024.
“meanwhile, [tech] “Layoffs can make headlines, but the internet is the most influential thing for consumers,” Meskin told Yahoo Finance, adding that 2023 trends suggest that investing in cash is no longer “king”. He also says that it may disappear.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor's note: This article was written by luke carberry morgan.
video transcript
Sheena Smith: Now, again, at least for now, the Dow Jones Industrial Average was down about 100 points or more, and the broader index was mixed at the open. January's jobs report came out much better than the Street expected. That's why we watch the Dow under pressure.
However, the Nasdaq continues to rise. A lot of that has to do with the strong numbers that came out this morning or last night from Amazon and Meta. Let's talk about this. How should investors decide between the two?
The company hopes to bring on Sonia Meskin, BNY Mellon's head of U.S. macro investment management. Sonia, I'm glad you're here. First, job he is sprint. That surprised us. This surprised many investors. So what do you think this means for stock price movements and some of the volatility concerns creeping into the market?
Sonia Meskin: of course. Of course, I think the January numbers themselves were very strong. But the revisions were also powerful. And there's a lot of talk about the impact of seasonality on January's numbers. But if you look at the average increase over the three months ending in January, the increase is quite large.
And one that is consistent with wage growth, which itself is consistent with 2% inflation over time. Therefore, we can say that the wage growth rate is approximately 3.5% or more. Average hourly wages match core PCE inflation of approximately 2% over time. And what we're seeing is a 4.5% increase in both the year-over-year increase in average hourly wages over the last three months for NFPs, as well as the overall increase, which is also roughly regressing. .
The labor market is clearly strong. What does this mean for stocks? Of course, on the one hand, from an interest rate perspective, expectations of early Fed rate cuts needed to be dialed back. On the other hand, as you said, if overall growth is maintained, consumers are a very large part of this economy, and they are employed and relatively optimistic about spending. If so, the prospects for the service sector will be better. The largest part of this economy is also relatively optimistic.
Of course, I think there are some factors that will suffer, such as the regional banks that you discussed earlier. I don't know if this is systemic or has ripple effects throughout the economy, but I think 2023 has proven that the economy is relatively resilient.
Brad Smith: What's funny, Sonia, coming to this report, we're talking about the number of tech layoffs that are coming up, and the number of layoffs that appear to be significant cuts from well-known companies. I mean, we were talking every week. And I wondered if it would show up in a report like this. Perhaps not this report specifically, but whether it changes the narrative of the labor market as a whole. And that doesn't seem to be the case at all.
Sonia Meskin: Well, we still have large sectors, health care, professional services that are still hiring. So while layoffs may grab the headlines, I think it's really the internet that has the biggest impact on consumers.
Sheena Smith: Sonia, what is that? How do you look at this from an investment perspective, in terms of the winners and losers that are going to happen in the market? Because, certainly, if you have strong employment, If you have a strong employment sector now, that may clearly indicate that many American companies could benefit here in the future. So how do we use numbers like these today to identify potential winners among them?
Sonia Meskin: of course. Basically, I think this number tells you not to keep cash. I think the story of 2023 is that from a lot of strategies, cash was king for many shops. And what we're seeing is a continuation of the real story happening on the ground, which is that no, cash is not necessarily king.
Diversification is good. It's good to stay invested in stocks. I think there are particularly good opportunities for companies with strong balance sheets. And bonds continue to offer a good opportunity as they can capture the downside in prices when the Fed starts cutting interest rates. But you also get a yield.
Brad Smith: And the same goes for investors, and we talked about this a little bit this morning, but I think for investors who are probably going to rely on that, they're very bullish on a March rate cut and even a May rate cut. did. How does this change the portfolio calculation?
Sonia Meskin: For people who aren't day traders, people who have a more mid- to long-term view, whether the Fed goes in March or May or June, I don't know if that's going to change the story much. yeah. Maybe it depends on how far they go.
But at the same time, again, getting back to growth, if the economy is strong enough and interest rates at this level are about right, with perhaps some adjustments, then we can see the prospects for even stronger growth. There's no need to change it. This is true for companies whether they have stocks or bonds.
Brad Smith: Sonia Meskin is head of US macro at BNY Mellon Investment Management. Sonia, thank you for taking the time this morning. I appreciate it
