Market Update – January 10, 2025

Jobs, Jobs, Jobs

Major Index Performances (as of Friday 1:00pm):

S&P 500: The benchmark index dropped (-1.7%)

Dow Jones Industrial Average: The Dow fell (-1.55%)

Nasdaq Composite: The index is down (- 2.08%)

Gold: The Precious metal is up 2.59%

The strength of the workforce: The job’s report this morning, January 10th, 2025, showed a 256k increase in jobs, well above the 165k estimate. Unemployment fell to 4.1%. With the labor market so strong, and unemployment indicating Americans are still working, why would the market drop nearly 2% today?

The strong Job’s Report suggest the American workforce is growing, implying that our economy is still expanding. Such a scenario most likely prevents the Federal Reserve to maintain or even raise interest rates during 2025. Though it has been our belief that the Fed can’t feasibly lower rates more than twice in 2025, today’s job reports confirmed our thesis.

Don’t get me wrong, lower unemployment is a good thing, depending on the circumstances. That is not meant to suggest we don’t want hard working Americans to find work and support their families. However, in the context of elevated inflation and higher interest rates, lower unemployment can ignite higher prices, and subsequently higher interest rates. These two elements are not good if you are trying to avoid a recession.

Higher interest rates: The strong job numbers this morning not only sent the market into a tailspin, but it also helped 10 Year Treasury yields hit 4.77%. Higher treasury yields are usually a negative indicator on the stock market, as investors shift funds from into safer, high yielding investments.

The 10-year treasury also influences mortgage rates – they move in tandem. A 30-year mortgage will be priced around 2.5% higher than the 10-year treasury yield. By this math, you can see that mortgages today are priced around 7.2%. This will continue to put pressure on home buyers, and more particularly, those who have Adjustable-Rate Mortgages coming due for refinancing when rates are rising. As mortgage payments increase, consumers have fewer discretionary dollars. This leads to decreased spending on goods and services.

Pullback or Buying opportunity: It has been our belief for a while that the stock market was overvalued, and a pullback was due. Could this be the start of significant pullback? Maybe. Or could this be another minor dip in a continuing bull market? Only time can answer those questions. For now, we believe that a complicated backdrop will continue to put pressure on our economy. We will maintain a cautionary approach, seeking opportunity, and monitoring risk.

Have a wonderful weekend.

Your OmniStar investment team