Slow starts
The January jobs report and it was…underwhelming. We only created 49k new jobs in January and the numbers reported for December and November were revised downward by 159k in total. The job gains in January were mainly in the professional services and local government education industries while the hospitality sector remains challenged and lost another 61k jobs after losing 536k jobs in December amid new waves of government-mandated shutdowns.
Moral of the story: This year is off to the slow start we had seen coming, which is why the market didn’t react negatively to this disappointing report. The market also appeared to put a greater chance of the Biden administration’s $1.9T stimulus bill passing given the weakness in the labor market. Additional stimulus should help provide support for small businesses and (hopefully) allow them to bring back some of their employees, but we have over 10m unemployed in this country, and if the recovery continues at this meager pace, it’s a long road ahead.
Tale of two cities
The ISM manufacturing index fell slightly for January, coming in at 58.7, down 1.8 from December. While this still indicates an expansionary environment for the manufacturing sector, companies are reporting that absenteeism from employees, short-term shutdowns to sanitize facilities, and difficulties in returning and hiring workers are all limiting manufacturing growth potential. The ISM services index, however, increased 1 point in January to 58.7, which is the highest reading for this index since February 2019. Growth in the services industries was strongest for the real estate (rental), construction, finance, transportation, and healthcare sectors while areas like accommodation and food services continued to struggle.
Moral of the story: It’s a positive that both the services and manufacturing parts of our economy are growing, but when you dig into the weeds, it’s tale of two cities between sectors that are doing well and those that are still really struggling. Hopefully the vaccine distribution and continued federal stimulus helps bridge the gap soon.
Positive surprises
It’s been another week of earnings and about 59% of the S&P 500 has reported so far this earnings season. Of those companies, 81% have reported earnings ahead of estimates. The positive earnings surprises have been about 15.2% higher than expectations. The Consumer Discretionary and Communication Services sectors saw the largest positive earnings surprises this week.
Moral of the story: The better-than-expected earnings, greater chance of stimulus, and progress on vaccine distribution contributed to major indices like the Dow Jones, S&P 500, and Nasdaq to post their best week since November. For smaller companies, included in the Russell 2000, performance this week was the best since June.