Jobs Data Surprise
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What Does it Mean?
We still live in this bizarre world where sometimes good news is not great for the market. Jobs data came in at 256K which was 101K more jobs than was expected. The market immediately looks at this as a negative due to the likelihood of the Federal Reserve (the “Fed”) pausing any rate cuts in the near future.
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Why Do We Care?
The Federal Reserve has two mandates. To promote maximum employment ( low unemployment) and stable prices (low inflation). I imagine it like when you have a drink that is really full in one hand and a heavy plate of hot food in the other. Sometimes you focus on one too long and the other spills, so you have to constantly be looking at both to make sure both are balanced (in our opinion, the Fed tends to spill a lot). In the second half of last year, we believe the Fed began to worry less about their cup (inflation) and worry more about the plate of food (unemployment). They began cutting interest rates in September to make sure their fight against inflation did not cause the labor market to be crushed due to interest rates staying too high for too long.?
That has shifted significantly in the last few weeks with the Fed taking their projections of rate cuts from 4 in 2025 down to 2 in their last meeting. We believe with this hot jobs data that the projected rate cuts may go down even further or even to zero. In our opinion, it seems like the focus has shifted back to the cup to make sure inflation does not begin to spill over again. We think this is problematic for the markets who have been projecting lower interest rates meaning cheaper debt for companies. In our opinion, the lack of rate cuts could lead to some increased volatility and downward pressure like we saw at the end of 2024. With Consumer Price Index (CPI) and Producer Price Index (PPI) coming out next week, we will continue to monitor these data points as the Fed does the same.
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What Does it Mean???
Foxconn is the largest assembler of iPhones for Apple but the key growth driver of their business recently has been AI servers that are growing rapidly. This news moved markets, specifically semiconductor makers like Nvidia, higher in the early half of this week to bounce back a bit after a rocky close to 2024. This news came in conjunction with MSFT confirming they plan to spend $80 billion in 2025 on building AI data centers. We believe headlines like this emphasize that we are still in the beginning innings of this Artificial Intelligence revolution.
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Why Do We Care??
We have some concerns for the overall economy with our national debt ever expanding, consumer debt levels at all time highs, and the Fed keeping interest rates elevated. However, one of the key reasons we have not turned bearish on this market is the evolution of AI that seems to just be getting started. Chipmakers like Nvidia are not the only stocks that are being influenced by the growth of the AI demand. Energy companies, specifically in the nuclear energy space, have seen significant stock price increases now that they are being utilized to power the AI data centers. Companies like Google are expanding their chip making abilities by producing a new quantum chip. Some AI centered small cap companies are seeing exponential growth. The list goes on. Much like the dawn of the internet, we believe this is just the tip of the iceberg and it is going to be a fun journey seeing it unfold before our eyes.
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Have a great weekend.
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- Logan Gilland CFP?
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