Global X ETF Model Portfolio TeamOn a day that is typically dominated by nonfarm payrolls, weak consumer sentiment had the larger impact on equity markets. Consumer sentiment dropped to its lowest in seven months, with January’s reading coming in below estimates. Concerns that tariff policies may be inflationary took center stage, with consumer’s expecting prices to increase about 4.3% this year, up from a 12-month inflation expectation of 3.3% only last month.
Markets pushed back expectations for the next Federal Reserve (Fed) interest rate cut all the way to September, increasing the 10-year Treasury yield. Although nonfarm payrolls were a mixed bag, they may have contributed to the rise in yields. While the headline number was below expectations, with only 143K jobs added, November and December’s data was revised upward by a combined 100K. Additionally, the unemployment rate decreased to 4.0% while wage pressure came in hotter than expected at 0.5% m/m (0.3% m/m estimate) and 4.1% y/y (3.8% y/y estimate).
Inflation concerns dominated the macro data from today, but underlying economic strength and consumption trends remain a focus as we navigate pockets of uncertainty. As reflected in Q4’s GDP reading, the strong consumer has been the backbone of the resilient U.S. economy. Uncertainty caused by recent tariff rhetoric may delay large ticket purchasing decisions. We’ll be closely monitoring retail sales over the next few months to assess the flow through from sentiment to purchasing decisions. Additionally, recent uncertainty may also impact hiring decisions over the next few months. As such, the big macro news days of CPI and NFP are likely to be even more important for markets over the next few months.
The charts below illustrate the composition of January’s nonfarm payroll gains and how the headline figure compared with expectations.
