Friends

U.S. payrolls rose by 256,000 in December which was quite a bit higher than the 155,000 that analysts had expected. The unemployment rate also fell to 4.1%, better than the 4.2% expected. Really good news for the economy, but not so much for stocks. Yes, it’s the good news is bad news environment for stocks right now. Remember, market participants were expecting the Fed to continue to lower rates during this easing cycle in monetary policy. But the strength of the economy stokes inflation fears and thus the long end of the yield curve continues to press higher, and stocks move lower.

Time for a little reality check. If you’re selling stocks because the economic data is too favorable, then simply put, you are doing it all wrong. Now if you are a trader and you are selling stocks because you believe we are in a valuation reset given the possible/likelihood of a change in the Fed’s easing narrative, then I can understand that. We have said for some time that despite the good backdrop for stocks, valuations are stretched. Stocks aren’t cheap and if the Fed is indeed going to rethink their monetary policy, then a price reset is warranted. But, for long term investors a good economy is good for companies which in the long run is good for stock prices. In other words, rooting for a bad economy so that the Fed will lower interest rates might work in the short run but is a very poor long term investment strategy.

As for today, by the close the Dow Jones Industrial Average was down 696 points to finish the day at 41,938. The S&P 500 was down 91 points to close at 5,827. The Nasdaq Composite Index was down 317 points to close at 19,161. Gold was up $25 to trade at $2,716 per ounce, while oil was up $2.63 to trade at $76.55 per barrel WTI.

Yes, stocks are struggling as we begin 2025 but given the change in the narrative with regards to monetary policy, it’s not really surprising. Let the market reset expectations. It might take some time and cost some more points in the market indexes, but I’ll take a strong economy in the long run for both the good of the country and our portfolios.

Have a great weekend everyone.

Jim