Mr. Market Evaluates Macro Data

The market rebounded firmly from yesterday’s slide, with several macro developments in focus. The market was positive on comments from Fed Chair Powell that the Fed will be ‘patient’ as the economy evolves, and that it is listening to the market’s concerns (Powell put anyone?).

Participating in a joint interview with former Fed chairs Yellen and Bernanke at the American Economic Association conference in New York, Fed Chair Powell said the Fed will be patient as the economy and data evolve.

He noted that the market has been focused on risks and is ‘well ahead of the data,’ but that the Fed is listening carefully to the market’s concerns and is prepared to be flexible with policy.

He also added that the Fed will be ready to readjust its balance-sheet policy as economic circumstances require. Powell also dismissed talk of political interference, saying the Fed is a non-political entity and he would refuse to resign if asked.

On the economic front, December’s non-farm payrolls report was well ahead of expectations, with a monthly gain of 312,000 jobs versus consensus estimates for a 180,000 rise – the biggest surprise since 2009.

Average hourly earnings were up 0.4 percent month-over-month and 3.2 percent year-over-year, faster than the November 0.2 percent rise and ahead of consensus for 0.3 percent.

The unemployment rate ticked up to 3.9 percent (from prior 3.7 percent) based on a rise in labor-force participation to 63.1 percent, which was the largest jump since 2013.  Although the higher unemployment rate might seem off-putting at first, it is good news that more people are re-entering the work force.

The report puts some focus on Fed’s path for interest rates, as it mirrors Fed’s outlook of healthy job market that led to policymakers issuing a median projection for two 2019 hikes. However, there was little immediate shift in market-based expectations for the Fed to hold rates steady throughout 2019.

Despite the big macro news, which is certainly welcome, the big takeaway for me is that markets are highly volatile, and will likely remain as such for a while.

Warren Buffett’s mentor, Benjamin Graham, told an allegory in his 1949 classic The Intelligent Investor, about a business with a few owners, including one named Mr. Market.

Mr. Market offers to sell his shares to his business partner daily, but he’s what we might call bi-polar today, and offers prices that vary wildly over short periods.  Some days, he’s fantastically optimistic, and some days he’s darkly pessimistic.

On Thursday, Mr. Market was feeling down, but on Friday, he was feeling good again.  It’s hard to tell how he’ll feel this week, so keep your seat-belt fastened.