Strong January Jobs Report Lifts Stocks as Fed Cut Expectations Shift

Remy: Welcome back to Market Movers The Opening Bell. While U.S. markets are soaring at the open, with the Dow, Nasdaq and S&P 500 all higher by at least half a percentage point. And this does come on the heels of the much better than expected non-farm payrolls and unemployment rate. Now, AI fears pulled the Nasdaq and S&P 500 lower yesterday, while the Dow hit its third straight record. And for the first time ever, the S&P 500 index swung from overbought territory to oversold and back to overbought again. All in less than a week. And in earnings, we've seen all the reports from the big banks plus six out of the seven bag seven names and over 60% of S&P 500 companies. Joining me to weigh in this morning on the jobs report is Christine Short, head of research for Wall Street Horizon. Christine, great to have you here. Thank you so much for joining me.

Christine: Yeah. Thank you so much for having me.

Remy: So the January jobs report, we finally got that out this morning. What do you make of the headline figures?

Christine: I was shocked, right? Most of the estimates we saw, especially economists polled by Dow Jones, were expecting around 55,000 jobs. That would be in line with what we saw the last two months. December, we had 50,000. November was about 56,000. I think the only estimate I saw that came close was Citigroup was expecting 135,000 due to some seasonal distortions though. Right. So we'll have to see more as the information comes out. But it was certainly a surprising headline number. Unemployment ticking down to 4.3% from 4.4%. And then wage growth. We actually got a little bit better than expected there 0.4% for the month. That expectation was 0.3% annual growth of 3.7%. That was in line with expectations, but overall some very strong numbers. I'd still say we're still in the low, higher, low fire environment. This isn't like a boom time for hiring, but it's certainly nice to see those numbers. And you see the markets love it. Treasury yields surged higher, reflecting that the fed might not cut as many times this year as a result of stronger jobs numbers.

Remy: Yeah. And Christine, great overview on the jobs report. And as you mentioned, we've been hearing some lower estimates for at least the headline figure for non-farm payrolls. we even heard from Hassett ahead of this release that there are a lot of concerns about this.

But when we take a look at other jobs data points, whether it's JOLTS or that Challenger Christmas Report or even ADP on a weekly monthly level and jobless claims, and also when you talk to Americans out there, they're not feeling the love when it comes to the labor market So what does that really tell you?

Christine: Yeah, absolutely. Like you said, it's a mosaic of data. You can't just look at one data point. And certainly the fed doesn't do they don't take one month of data and make decisions based on it's over a period. And as I've said, we've seen over the period the labor market has been softening. while this was better than expected and perhaps has to do with some of those seasonal distortions, like you said, there are so many other job surveys, consumer sentiment surveys out there that are reflecting something different in just the sheer number of layoffs we've heard of.

That certainly factors into American psyche, right? So while this was better than expected and we'll take it, you have to factor it into all of the other data that we're seeing, even just retail sales the other day coming in weaker than expected. We're going to start hearing from the retailers now in the next couple of weeks from earnings.

So we'll have to see what the U.S. consumer, how they are feeling, how they are spending their money. But certainly this doesn't mean that, again, we're in a boom time hiring that we're still kind of in that labor softening. And like you said, Hassett himself warned whether it was because of AI. But don't expect, you know, expect a bit of a softening here in the employment.

Remy: Yeah. And do you bring up an important point, because the retail sales did come in below expectations. even the Fed Reserve Bank of Atlanta in terms of their GDP growth, they walked that back yesterday as well.

And when we look at what we're seeing in the markets right now, we're looking at the Dow above 50,400 and the S&P 500 fast approaching that 7000 level. We are still looking at a market rotation and so much volatility across all asset classes So what does that tell you?

Christine: Like you said earlier it's now we're rebounding from an oversold market. That was maybe overreacting a lot to a lot of the AI news certainly in software stocks. And then again in in banks and financials the other day with, you know, tax software and tax AI tools being made available. And like you said, it's volatile.

Investors don't quite know what to make of certain data sets because there's so much opacity still out there, especially around the AI trade. You know, all of the hyperscalers reported excellent earnings numbers for Q4 and guidance going forward was quite good as well. It was the CapEx numbers that sort of spooked investors as they figure out how much spending is too much, is the spending justifying the returns that we're seeing?

When will we start to see those returns as a concern about free cash flow? All of the cash going into this. And so you can see investors sort of flip flopping. Certainly they're taking the good news today. But again we have so many more data points to look at this week. We have CPI on Friday. Let's see where inflation is heading And then like I said over the next couple of weeks we get on a read on the consumer, which is really the core of our GDP. Right. That's 70% of our GDP is consumer spending. I want to hear a little bit more about how consumers are feeling, because from the consumer facing names that have already reported, we're seeing the same trend where higher income cohort is continue to shop, continuing to shop and carry up and rising all boats, sort of the lower income cohort is still very value oriented and pulling back.

Remy: And just building on what you just said, we are looking at a rotation.

So I do want to get your sector outlook, especially because we've been looking at some of these double digit percentage moves on some names, including software and as you mentioned, wealth management. And this does come on the heels of uncertainty. So tell us what's happening under the surface.

Christine: Yeah. So I mainly look at the fundamentals right. I'm looking at the earnings data. And I'm looking at who's um you know, who's putting up the numbers and who's putting up guidance for next year that I think they can, you know, fulfill. And again, it's really continually although there's been a broadening out of sectors as we've seen it really is being driven by tech. Communication services are the two leading sectors this earnings season and expected to continue to lead overall growth into 2026.

So while we are seeing that rotation and again other sectors are coming into play, it really is again an AI story that we're, you know, still uncertain about, but one that is putting up, you know, decent growth numbers and then communication services as well.

Remy: And when we're looking at the major stock averages, it's not just the Dow, Nasdaq and S&P 500. It's also the Russell 2000. So what is your outlook for small caps?

Christine: Yeah. You know small caps have had a tough run. Actually I've been looking at mid caps lately because those have come into play. And while you know the larger caps have been struggling over the last few weeks with volatility, we've actually seen some decent performance from mid caps. But yes small cap. It's a little harder to say. I'd say right now I'm more bullish on large cap companies. But yes certainly we've seen some of those. Like you said on the other indices the mid caps come into play as well.

Remy: Yeah. And earlier you mentioned yields rising. We're also looking at gold as well as silver rising today. So what do you make of the price action that we've seen in bonds as well as precious metals?

Christine: Yeah it's interesting right. Because you wouldn't expect it's like this has risen all all asset classes when usually you see the a benefit to one and not to the other. But I take it all as bullish sentiment. Certainly like you said we've seen a move in commodities over the last year or so and certainly in bonds. Certainly a lot of bond news out of the hyperscalers this week. So fixed income managers scooping up those those debt offerings. And so we're seeing a lot of those debt offerings come as they try to scale out those data centers. So yeah moving in and really green across the board this morning.

Remy: Yeah. And finally I do want to end the conversation by talking about the central bank. this year their expectations of policy as well as stimulus. So what do you expect to see from the Fed Reserve and what does the new regime mean for these central bank?

Christine: Yeah, I follow the same group's fed watch tool. They've been pricing in about two to maybe three cuts this year 25 basis points cuts currently, and I haven't checked since the data came out this morning Jobs data. But I still expect that at the March in the April the 2nd last meetings that we see Chairman Jerome Powell at the helm, there's no expectation for a cut. Warsh's first meeting in June. The newly appointed chairman. There is an expectation for him to kind of kick it off with a 25 basis point cut, and then there's an expectation for 1 or 2 more cuts this year. not not heavy on the interest rate cuts.

And again with this news this morning the labor data. Does that really push it down to two. That's that's perhaps the case but just modest cuts. But again that could change as we as we roll through the data this year and we get better or worse expected data. We know there are a couple fed presidents that are still very focused on inflation So we'll be tuning in to CPI on Friday. And there are others that are more tuned into the labor market. So are taking this as a win.

Remy: Well, a lot of data points to watch and a lot of moving parts. So thank you so much for weighing in on the jobs figure as well as your outlook.

Christine: Thank you so much for having me.