February 7, 2025
Good morning,
Markets are quiet early this morning (Futures: unchanged, for example) as Traders and Machines (algorithmic auto-execution trading “Black Boxes”) are anxiously waiting for the January U.S. Employment Data at 8:30 am EST. In step with my newly revised policy of writing Friday Morning Notes – week-to-date summaries – I am writing this morning’s ahead of the payrolls release. In between the lines, at the bottom of today’s note, I’ll insert the market’s initial reaction to the data print and then hit send.
Chaos and uncertainty in our lives feel like it has been rising. Barely two weeks into the second Trump term, all can agree that the administration is moving at a rapid pace, with executive orders, tariff announcements and recessions, federal agency closures, and foreign territorial acquisition proposals. Whether chaos is a strategy of design or happenstance should be left to the political pundits, markets don’t care about that. There is probably no time when it is more important to discern the market’s emotion-free message than when chaos seems to reign.
In the long run (Mos. Qtrs. Yrs), two underlying truths matter when it comes to Washington and the markets. First, what is actually enacted matters more than hypotheticals. Second, while “don’t fight fiscal policy” is one of the 10 Rules of Market Research (just ask, I’ll send you the other 9), much of what determines stock market performance over the long run is determined outside of D.C. Over the short term (Days, Wks.) political chaos usually heightens market volatility but the underlying, objective market signals cut through that noise.
The bottom line is that over the past two weeks of an emotional rollercoaster, the weight of the evidence favoring stocks has grown on an absolute basis and relative to bonds and cash. Sentiment has dipped down from its excessively optimistic levels of late last year. Earnings season is off to a solid but not spectacular start. There appears to be a healthy rotation out of the mega-cap Growth stocks (Mag 7+), but it is too soon to label it a trend, and we’ve seen these head-fakes before over the past few years.
Calming thoughts and happy weekend wishes.
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The employment report printed a softer-than-expected headline payrolls number (+143K vs. est. 175K) but with huge upward revisions to last month’s number, offsetting today’s lower figure. Neutralized headline number aside, the inside numbers tilted decidedly toward a stronger economy – the last administration went out on an economic high note. In sum, the package of numbers gives the Fed more reason to remain on hold.
Equity markets remain largely flat after the data (a yawn to them), while yields are up a few basis points on Treasuries.
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Be well,
Mike
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