Investors hoping for a continuation of the stock/bond rally that characterized most of the past two months of 2023 have probably been pretty disappointed. Since Christmas, it’s been utilities, consumer staples, low volatility, value and dividend stocks that have easily been outpacing the S&P 500. As I noted in Friday’s piece, this could have broad implications for the rest of 2024 as defensive leadership to start the new year tends to carry forward through the rest of it. There’s certainly an element of unwinding an overbought rally that’s contributing to it, but we’re still seeing almost the exact opposite of the end of 2023. Staples outperformance is perhaps the most compelling piece of all. Utilities are still being influenced by the volatility in interest rates. Staples are a bit more of a pure defensive play. If those keep breaking out, it’s a bad sign for a lot of last year’s leaders.
Friday’s reaction to the non-farm payroll report was really interesting. On the surface, a 216,000 jobs added figure should have sent yields higher and stock prices lower since that would seem to work counter to the argument that the Fed will cut a half dozen times in 2024. That played out for about 15 minutes before stock and bond prices started moving higher. The likely reason is that the ISM Services Employment report fell through the floor, hinting at a surprisingly sharp contraction in the non-manufacturing labor market to a level only seen during the worst bear markets of the past quarter century.
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