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Trade Acquiescence JOLTS Stocks North: Feb. 4, 2025

Trade Acquiescence JOLTS Stocks North: Feb. 4, 2025

Posted February 4, 2025 at 12:44 pm

Jose Torres
IBKR Macroeconomics

Geopolitical acquiescence from the US’s northern and southern neighbors is quelling concerns of a wider-scale trade war and driving buy-the-dip appetites across equity and fixed-income assets. Indeed, investors are in a cheerful mood on the heels of a postponement of 25% Trump tariffs on Canada and Mexico following telephone calls with each country’s heads of states and America’s commander-in-chief. Meanwhile, the 10% duties on China are still on but retaliatory actions from Beijing were much lighter than feared, which added fuel to the rally. An intraday economic report, furthermore, jolted stocks north and yields south as US job openings posted a sizeable miss. Moreover, the 10 a.m. ET JOLTS numbers are raising the odds of a rate reduction from the Federal Reserve sometime this year, according to our marketplace, as the committee has expressed limited tolerance with labor market weakness.

Forecast contract asking if fed funds rate will be set above 4.125% in May

Source: ForecastEx

For-Hire Signs Become Less Common

US labor vacancies declined sharply to end the year, according to this morning’s Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics. The result jolted the stock market higher, as equity traders know that the Federal Reserve may tolerate a little inflation but is extremely sensitive to decelerating labor conditions. For-hire signs posted a three-month low of 7.6 million in December, well below the median estimate of 8 million and November’s 8.156 million. The largest declines and the scope of contractions occurred in the following segments:

  • Professional and business services, 225,000
  • Health care and social assistance, 180,000
  • Finance and insurance, and 136,000

The arts, entertainment and recreation component cushioned the blow with a gain of 65,000 during the period.

Generally speaking, the 12-month decline in labor vacancies is confirmed by private-sector job posting data from Indeed. Finally, quits within the JOLTS report rose slightly from 3.13 million to 3.2 million.

Job openings hit three month low
Data from Indeed confirms JOLT data regarding declines in job openings

Banks Raise Standards for Credit Cards

Loan providers have made it marginally easier to qualify for auto loans with the number of banks increasing requirements dropping 3.8% quarter over quarter, but 9.4% of banks have raised standards for credit cards, according to the Federal Reserve’s survey of senior loan officers. Additionally, 3.6% of institutions have followed suit for other types of noncommercial debt. Demand for credit card, autos and other forms of consumer loans, meanwhile, has declined 9.4%, 3.8% and 5.4%. In the commercial and industrial arena, standards for loans for the large and medium group and small category were increased by 6.25% and 11.1% of respondents. The number of institutions increasing spreads for loans in those two categories declined 9.4% and 8.2%, respectively, while 9.4% and 3.2% of loan officers reported increased demand.

Equities JOLT Upward

Markets are sprinting as acquiescence from trade partners and a friendly intraday economic report JOLT stocks north while pressuring yields and the greenback south. Every major domestic equity benchmark is gaining on the session with the tech-heavy Nasdaq 100 leading; it’s up 1.2%. But folks, the Russell 2000 and S&P 500 aren’t far behind as they sport daily increases of 1% and 0.7% while the Dow Jones Industrial is up just 0.2%. Sector breadth is strongly positive with investors just unloading the three defensive categories while the other eight post increases. Indeed, consumer staples, utilities and health care are the only segments lower and are losing 0.8%, 0.7% and 0.6%. Meanwhile, energy, technology and communication services are piloting the bulls; those categories are up 2%, 1.5% and 0.8%. Treasurys are also catching bids with the 2- and 10-year maturities changing hands at 4.22% and 4.53%, 3 and 2 basis points (bps) lighter in today’s trading. Softer borrowing costs, compressing rate differentials and reduced US relative growth outperformance on the back of a rosier outlook for trade are sending the greenback south. The Dollar Index is down 39 bps as the US currency depreciates against all of its major counterparts, including the euro, pound sterling, franc, yen, yuan and Aussie and Canadian tenders. Commodities are mostly bullish, but lumber, a top Canadian export, is down 3.6% as Ottawa and Washington find common ground. Silver, crude oil, gold and copper are higher by 2.1%, 1%, 0.9% and 0.6%, however.

US Needs Mexico, Canada Partnership

Today’s bullish activity is motivated by a short-term outlook of trade acquiescence and collaboration on behalf of the top three North American nations. The US needs its northern and southern neighbors, which have helped Washington incrementally shift routes and supply chains away from the Chinese post-pandemic. Canada provides the US with critical mineral and energy commodities while Mexico offers labor, crude oil, natural gas, agriculture, automobiles, electronics, chemicals and more. Continued partnership between the leaders of the continent is required to maximize economic growth and minimize price pressures. Recent Trump bumps in markets have been driven by investor recognition that a lack of teamwork between the big three will lead to reduced activity and stronger inflation. Finally, it’s important for market participants to realize that this week’s reprieve is subject to transition, as the administration’s confrontational tendencies can generate Trump bumps elsewhere.

Today’s Earnings Roundup

AI Pumps Up Earnings and Consumers Flock to Entertainment

Artificial intelligence (AI) continues to power strong corporate earnings while in the retail sector, consumers are splurging on entertainment but are curtailing various other types of discretionary spending. Those are a few points from the following earnings highlights:

  • Palantir Technologies (PLTR) shares jumped more than 25% this morning after the company said AI has created strong demand for its software. In the US, commercial revenue jumped 64% year over year (y/y) while sales to government entities jumped 45%. The bottom of the company’s range for current-quarter revenue, $858 million, surpassed the analyst consensus expectation of $799 million. Palantir CEO and Co-founder Alex Karp says the demand acceleration within both commercial and government areas is “unlike anything that has come before.”
  • PepsiCo (PEP) reported a 0.2% y/y decline in revenue that missed estimates with Americans holding off on buying snacks and soft drinks in order to pay for essential items that have become more costly due to inflation. The company was able to increase its prices, on average, 3%, but total sales volume dipped 1%. While revenue missed expectations, earnings per share (EPS) were stronger than forecast, a result of the company investing in programs to improve productivity. PepsiCo shares dropped approximately 2% after the company provided guidance that was below expectations.
  • Estee Lauder’s (EL) fiscal second-quarter EPS and revenue beat analysts’ expectations despite dropping 6% y/y, and the company said it expects current-quarter sales to sink as much as 12%. Conversely, its earnings guidance for the current quarter missed Wall Street estimates. Despite posting the earnings beat, the cosmetics giant said it will increase the size of a planned layoff to as many as 7,000 workers, up from its previously disclosed target of 3,000. It cited fears of a global trade war in announcing the revised plans.
  • PayPal’s (PYPL) earnings, revenue and guidance exceeded analysts’ expectations. During the recent quarter, revenue climbed 4% y/y despite the volume of transactions that the company processes for third parties declining. PayPal has been focusing on other, more profitable, channels.
  • Spotify Technology (SPOT) completed its first profitable year and posted fourth-quarter revenue that exceeded expectations. Just a few days after Apple (AAPL) reported strong growth in its service segment, which includes streaming entertainment, Spotify said its monthly active users grew by 35 million, placing its total at 675, which exceeded Wall Street’s target. The gain occurred despite the company increasing prices for its streaming services. 

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