February 2024 Jobs Report Preview: 4 Major Considerations

Markets backed off slightly on Monday. The Nasdaq (QQQ) lost 0.41% while the Dow Jones and S&P 500 (SP500) ended nearly flat. Participants are waiting for Fed Chair Powell to testify before key House and Senate committees on March 6-7. Next Tuesday, the CPI report will re-affirm Powell’s testimony.

Last month, the January 2024 blowout jobs report justified the Federal Reserve’s hawkish tone that preceded it. The hot CPI revision report that followed further supported the Fed’s upcoming decision to keep interest rates higher for longer. What will happen to the stock market when the Bureau of Labor Statistics posts February’s non-farm payrolls this Friday?

1/ Watch the US Dollar, Bitcoin, and Regional Banks

For 2024, the US dollar (UUP) strengthened, rising by 3.51% so far. Strong jobs data will force the Fed to keep interest rates the same. Additionally, it will have a hawkish tone. Backed by strong ISM (Institute for Supply Management) and payroll growth, the strong economic data does not suggest the Fed needs to take any drastic actions. For example, when gold surged to $2,100, a new all-time high, the rise was not a result of the market eyeing a possible June rate cut.

Markets are trading at all-time highs. Cryptocurrencies, led by Bitcoin (BTC-USD) at $68,500, enjoy a massive influx of retail buying through exchange-traded funds. Although the Fed does not act to help the stock market, its strength indicates loose credit conditions.

Bears may point to growing troubles for New York Community Bancorp (NYCB) to counter my view that financial institutions are thriving. However, NYCB cited material weakness in its internal accounting protocols. It recorded a $2.4 billion accounting charge related to a goodwill impairment. Furthermore, Moody’s and Fitch both downgraded NYCB’s credit ratings again.

Seeking Alpha issued a performance warning on New York Community Bancorp shares. The stock has poor factor grades and a “Sell” Quant rating.

The market is not panicking. The SPDR S&P Regional Banking ETF (KRE) is steady. Still, momentum is worsening, as indicated by the weak F grade:

2/ Watch Bond Yields

At the time of writing, the 6-month Treasury yield (US6M), the 3-month (US3M), 12-month, and 30-year treasury (TLT) traded higher on the day. The 3-month yield is closest to its 52-week high at 5.41%. Conversely, the longer-term Treasuries are pulling back from their highs.

Markets continue to park their cash in shorter-term maturities. They still expect interest rates to fall within three months or at the June Federal Reserve meeting. Although I believe the Fed has no incentive to lower rates, the bond market disagrees.

The bond market’s reaction to the NFP report on Friday will give debt and equity investors more clarity on interest rate expectations for the rest of the year.

3/ Expected Jobs Added

In January, the U.S. economy added 353,000 jobs. Neither economists nor the media expected a rise of this magnitude, the biggest in a year.

Readers may cite layoff headlines in the gaming industry and technology contradicting the above chart. For example, government job additions would easily offset the nearly 50,000 jobs cut in the tech sector. In the bar chart below, companies with layoffs fell last year, only to surge in the seasonally strong month of January.

Firms with notably large job cuts included Bumble (BMBL) cutting 30% of its staff, Expedia (EXPE) at 8%, and iRobot (IRBT) at 31% of staff. Still, these firms have company-specific headwinds. Bumble lost $32 million in the last quarter as it struggled to compete with Match (MTCH). Amazon (AMZN) abandoned its plans to acquire iRobot, forcing the firm to file for a massive 100 million mixed-shelf offering to survive. Tourism firm Expedia cited a downturn in travel-related gross bookings as the need to cut costs. It will pay $80 million to $100 million mostly toward employee severance and compensation benefits.

4/ Stock Market Sell-Off

Bearish investors who missed the bullish stock market rally may call for a stock market correction. Another hot jobs report is unlikely to influence the indices. The strength of the magnificent seven technology firms is unlikely to change. This limits any broad market sell-off.

Microsoft (MSFT) is vastly ahead of Alphabet (GOOG) with its CoPilot artificial intelligence offering. It needs to convince people that Bing search is good enough compared to Google search.

Alphabet in danger of being replaced is a question that does not yet have an answer. The firm still managed to achieve $15 billion in annual revenue from subscriptions, thanks to YouTube Premium and Music, YouTube TV, and Google One.

Tesla (TSLA) is admittedly in some trouble. I expected the firm to survive amid the EV flop. However, its sales in China are at levels not seen in over a year.

Apple (AAPL) shares are struggling this year. Down 9%, the European Union’s EUR 1.8 billion fine levied on Apple for its abusive behavior is a setback.

Markets are currently selling off by sub-sector. The electric vehicle is an example of a bear market that is taking place independently from economic data releases.

Your Takeaway

Expect a muted reaction to the jobs report. The market is indifferent to the importance of the NFP data to Federal Reserve interest rate policy. Conversely, long-term investors who adjust their portfolio quarterly will review stock market valuation risks and expectations of continually high interest rate levels.