Investors Weigh In on Jobs Data: Fed Is in a ‘Tough Position’

(Bloomberg) -- Friday’s jobs report went a long way toward quelling concern that a recession is imminent. Stocks jumped, though they remain flat over 2019’s first three days and barely dented a 15 percent tumble since September.

Nonfarm payrolls increased by 312,000 in December, the most in 10 months, as wage gains accelerated and more workers came into the labor force. The report heightens focus on the Federal Reserve, whose rate hike path defies easy analysis.

Here’s a sample of what investors are saying after the report:

Ryan Nauman, market strategist at Informa Financial Intelligence

“It’s going to put the Fed in a tough position. This jobs report definitely gives them the info to move forward with their expected two hikes or another hike at the beginning of 2019. When you consider a slowing manufacturing and housing sector there are concerns out there that the Fed should consider in addition to the jobs report. But just solely on the jobs report, it makes it easier for them to follow their gradual rate hikes. Just based on the jobs report, the economy has the legs to expand through 2019.”

Eric Souza, senior portfolio manager at SVB Asset Management

“The Fed has been the stimulus provider, the best friend of the equity market for all these years. You’ve seen in past data that anything that signals that would keep the Fed on pace for raising rates the equity market sold off. The Fed was going to continue to raise rates and take away this stimulation they’ve brought to the market. For me I would see how the equity market could sell off here a little bit. But when the numbers hit, the headline always has so much volatility. We’ve had just so much concern, on the flip-side, about global growth slowing down -- this should give calm to the market. If we have continued solid data, and then this number, we’d see a sell-off in the market because it would mean the Fed is going to go two times this year. Part of the reason equity futures markets are staying in range is they’re looking at what the bond market is pricing, which is no rate hikes this year, and the equity market likes that.”

Laura Rosner, senior economist at MacroPolicy Perspectives LLC

“The market clearly has been very concerned about recession after yesterday’s ISM as well as some of the guidance we are receiving from companies. So I think what this report tells us is for now, the economy is still very strong,” she said. “There could be some lag between financial market stress and other shocks and hiring so I don’t think we’re out of the woods. We’re going to have to see if this strength is sustained.”

Matt Maley, equity strategist at Miller Tabak + Co.

“No matter what the Fed’s going to do this year, today’s number showed that even though the Fed may still raise rates once or twice this year, it showed that a recession is still not very likely this year. Recessionary fears were really starting to grow but today’s number eased those fears. Therefore even if the Fed is to going to raise rates once or twice, the fact that we’re not going to get a recession is helpful.”

Bryce Doty, senior vice president at Sit Investment Associates

“It puts the Fed in a tough position. And the stock market’s going to hate it. [Powell’s] in a lose-lose situation. He will say positive things about the economy and everyone will hate him for it. Even though it’s the truth. Pessimists are taking even good news and twisting it into something bad. Like China, for example, everyone’s saying they must be in terrible trouble. But they’re trying to give a boost,” he said. “I never had the fear of a recession. I think that the stock market moves were as if we were already in a full-blown recession but clearly we haven’t been. The fourth quarter was strong, employments strong. There’s a disconnect between stock market movement and valuation of asst prices and the reality of economic activity.”

Eric Winograd, AllianceBernstein LP senior U.S. economist

“Today’s release of the employment report for December was just as strong as yesterday’s ISM manufacturing report for December was weak. That contrast makes plain the dilemma faced by policy-makers. The labor market is very strong even though the economy appears to be slowing. Those two things cannot coexist for very long. Either weakening demand will lead firms to dial back the pace of hiring or the robust pace of hiring will lead firms to ramp back up production. Or, to put it differently, was the strong holiday season a last, final burst of activity before economic winter sets in? Or is the market’s doom and gloom completely misplaced?” he said. “For the Fed, today’s report poses an obvious challenge. The strength of the labor market argues for additional rate hikes, but the weakness of financial markets and mounting evidence that growth is faltering argue against.”

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net;Reade Pickert in New York at epickert@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka

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