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January 6, 2024 Market Update

The non-stop rally for U.S. stocks over the past two months finally ended in the first week of trading for 2024.  The S&P 500 Index fell last week by 1.5% -- its first weekly decline since October. 

The bond market also retreated in the kick-off for the year.  Vanguard Total Bond Market ETF (BND), a proxy for investment-grade U.S. fixed-income securities, fell 1.1%, ending what had been a near-perfect bull run for bond prices for more than two months.

Data out last week showed that hiring rose and pay gains continued in December.  Last week’s reports were consistent with sustained economic growth and cast further doubts on forecasts for the imminent start of a recession.

Private payrolls increased 164,000 last month, the most since August, according to figures published last Thursday by the ADP Research Institute.  Workers saw a 5.4% median pay increase in December from a year ago.

Layoffs have slowed as well, according to a report issued on Thursday by Challenger, Gray & Christmas, a national outplacement services firm.  Their survey found that announced layoffs by U.S. companies declined by 24% in December from the previous month and are 20% lower vs. the year-ago level.

Finally, the work force grew much faster than expected in December according to the Labor Department’s latest assessment of the jobs market.  It showed employers added 216,000 jobs for the month, although the unemployment rate held at 3.7%.  Average hourly earnings rose 0.4% on the month and were up 4.1% from a year ago.

Labor market data deserves close attention because the strength and the pace of wage growth will be a key consideration for Federal Reserve officials in their decision on when to begin cutting interest rates.  Mr. Market already appears to be adopting the view that the pace of rate cuts will be slower than previously expected.  While stock and bond prices have dropped recently as a result, a strong jobs market may provide support for a stronger economy and more durable market gains over the longer term because it allows the Fed to adopt a more traditional monetary policy, as opposed to the dramatic measures it undertook in response to the pandemic.  

That’s all for now.  Have a great weekend and invest wisely my friends.