Stock market buyers have only been in the new year for two days, but they have already stopped the slide that was going to end a still great year, 2024.
This coming week, all eyes will be on the U.S. job market, as the December jobs report comes out on Friday. And people are getting more and more excited about what ideas President-elect Donald Trump will try to put in place after he takes office on January 20.
U.S. stocks fell at the end of 2024 as people’s attention turned back to high inflation and the Federal Reserve’s announcement that it plans to cut interest rates just twice in 2025. But Michael Green, portfolio manager and chief analyst at Simplify Asset Management, told me on the phone that investors shouldn’t think everything is fine in the job market.
He said that there has been a “very noticeable divergence” between data from nonfarm payrolls and data from other sources, like the manufacturing index from the Institute for Supply Management. ISM said Friday that its job gauge dropped from 48.1 in November to 45.3 in December, but the manufacturing index went up to 49.3. A contraction is shown by a number below 50. ISM’s services sector gauge shows that jobs are still being created, but the rate of growth slowed down in November. This week is the due date for the December services update.
Besides that, there are other worries about jobs. He said that the rise of the gig economy might be making it harder to read the data from jobless claims because people who have lost their jobs might rather drive for Uber or do other part-time work than go through the trouble of filing for unemployment. That might help explain why first-time claims are still close to their recent lows while continuing claims are going up.
There are more signs that make me worry. He said that the number of full-time jobs in the private sector is at levels that would be expected during a recession. At the same time, the number of government jobs has grown at the state and local level, which is more vulnerable to changes in the economy than federal jobs, which are more stable during recession (see chart below).
Green doesn’t like the birth-death model used by the U.S. Bureau of Labor Statistics to figure out how many net new jobs are created by new businesses and how many are lost when businesses close. This model is used to account for new businesses that weren’t picked up by the poll. However, it has been criticized for a long time for not being good at picking up on economic turning points.
Green thinks that it will once again be the cause of big downward revisions that are coming up early this year.
He said that changes and revisions to the methodology affect more than just the job data. “It’s just very important to know that nonfarm payrolls are the source of all the numbers we use, like personal income, GDP, and so on.”
However, for now, that means the December jobs report will be another report that won’t give buyers much information, he said.
There were small losses on Thursday, but big gains on Friday put the S&P 500 SPX +1.26% up 1% and the Nasdaq Composite COMP +1.77% up 1.6% over the first two trading days of 2025. This is the best start to a new year for both indexes since 2018, according to Dow Jones Market Data. It looked like the Dow Jones Industrial Average (DJIA +0.80%) went up by 0.4%.
Even though the week was cut short by the New Year’s Day holiday on Wednesday, stocks still went down. Traders will have another short week because most U.S. markets will be closed on Thursday in honor of Jimmy Carter’s national day of grief.
“Investors are feeling a mix of emotions at the start of 2025. They are optimistic about the medium to long term, but they are nervous about the short term and technical tailwinds have broken down.” “After two great years for the market, a period of consolidation is neither surprising nor healthy,” said Mark Hackett, chief market strategist at Nationwide, in a note on Friday.
After going up 24% in 2023, the S&P 500 index ended 2024 with a 23.3% gain.
Rep. Mike Johnson of Louisiana was re-elected as speaker of the House on Friday, but only after Republicans in Congress pushed him to do so. Analysts say that if they hadn’t won the gavel or the fight went on for too long, it could have hurt the market’s faith in the Republican-controlled Congress’s ability to pass deregulation, tax cuts, and other measures that stock-market bulls were looking forward to.
But there are also doubts around how Trump’s plans may affect markets. Some people are worried that planned tax cuts won’t be balanced by cuts in spending, which could ease concerns about the growing government budget deficit. This has led to a drop in Treasury prices. Trump’s plans to put tariffs on a range of imports have also served to stoke inflation fears.
“With uncertainties stemming from the new administration’s policy initiatives (i.e., taxes and tariffs) and equity markets priced to perfection, there is little room for error regarding economic and earnings disappointments — particularly if the Federal Reserve is unable to cut interest rates further should inflation surprise to the upside,” said Larry Adam, chief investment officer at Raymond James, in a Friday note. “This will likely lead to higher volatility in 2025.”
