Sizzler: Job Growth Doubles Expectations, Nabs Spotlight From Mega Caps That Soared After Earnings

Job growth nearly doubled expectations at 353,000, the highest since January 2023, while Amazon and Meta shine after delivering on quarterly results.

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Key Takeaways

  • Job growth was 353,000 for January, and also revised for December and November
  • Apple falls as analysts mull weak China sales, iPhone forecast, but Meta, Amazon soar

  • Meta climbs 17% in premarket trading after company declares first dividend

(Friday market open) Monster U.S. January jobs growth of 353,000 nearly doubled expectations and was the highest in a year, more evidence that the economy continues to sizzle but potentially triggering inflation fear. Treasury yields rose sharply after the report, even as mega caps Meta Platforms (META) and Amazon (AMZN) soared following exuberant earnings.

The government’s jobs report wasn’t just solid for January. It also raised November and December’s employment gains by a combined 126,000. That’s a departure from the 2023 norm, which typically saw downward revisions to previous data.

Wages also rose sharply, up 0.6% month over month and 4.5% year over year. The pay gains were the biggest since last February. Wall Street had expected 4.1% wage growth. Higher wages tend to support stronger consumer spending and help the economy, but that can also contribute to higher prices as more consumers chase more goods.

“The report was stronger than expected across the board,” said Collin Martin, a director of fixed income strategy at Schwab. “Average hourly earnings rose much more than expected, which can slow the down the recent disinflationary trend.”

The 10-year Treasury yield popped 14 basis points to nearly 4% following the data, but so far major U.S. indexes remained mostly higher in premarket trading but pulled from their earlier gains given falling expectations for a near-term rate cut.

Before the explosive jobs data, earnings from Apple (AAPL), Amazon, and Meta hogged the spotlight. All delivered better-than-expected quarterly results late Thursday but only Amazon and Meta were rewarded in premarket trading. A drop in Apple’s China revenue and an outlook that appeared cautious about iPhone sales got a thumbs down from investors, even though Apple’s revenue increased overall after four straight declining quarters. Shares fell 3% ahead of the open.

Amazon and Meta results received far more “likes” as both companies easily exceeded estimates and Meta offered a dividend for the first time. That could be evidence the company has faith in the reliability of its cash flow. Advertising, cloud growth, subscribership, retail, and other critical metrics for both companies all impressed analysts. Meta shares catapulted 17% in premarket trading and shares of Amazon rose 7%. For more details on all three mega caps, see below.

While those three surpassed expectations, regional banks remain a source of concern after poorly received quarterly results earlier this week from New York Community Bancorp (NYCB). Shares fell another 11% yesterday after a 38% drop Wednesday, while the KBW Regional Banking Index (KRX) sank 2.3% to a two-month low. Bank weakness was offset by strength in several other sectors, including retail and consumer discretionary.

Futures based on the S&P 500® index (SPX) rose 0.3% shortly before the close of overnight trading. Futures based on the $DJI fell 0.16%, and Nasdaq-100® (NDX) rose 1.2 %.

Morning rush

  • The 10-year U.S. Treasury Yield (TNX) rose 14 basis points to 4% after the jobs data.
  • The U.S. Dollar Index ($DXY) dropped to 102.99. It hasn’t closed under 103 since January 12.
  • The Cboe Volatility Index® (VIX) was steady just under 14.
  • WTI Crude Oil (/CL) fell 0.6% to $73.34 per barrel, the lowest since January 22, after OPEC left production levels unchanged.

Just in

The hot jobs report came two days after the Fed signaled hesitancy about lowering rates from current elevated levels, saying it wants to confirm that inflation stays cool. A report like this one might reinforce that sort of thinking, and the futures market now sees less than a 20% chance of the Fed cutting rates 25 basis points next month, down from 33% before the jobs report. There’s still better than 70% chance that rates will be lower by May, however, according to futures trading.

Unemployment remained at 3.7% in January, while the jobs growth came in far above average analysts’ expectations of 180,000.

Looking at the breakdown, professional and business services jobs growth of 74,000 led the way, while health care jobs rose 70,000, the Bureau of Labor Statistics said. Retail trade employment rose 45,000 and manufacturing rose 23,000. Construction, leisure and hospitality, and transportation and warehousing all changed little from December, the government said.

The strength in professional and business services, where jobs tend to pay more, could help explain the surprisingly strong wage gains last month. Labor force participation remained at 62.5%, near where it was before the pandemic.

Stocks in spotlight

Magnificent three: By now, most investors likely saw highlights from Thursday’s Amazon, Apple, and Meta earnings. Here are some takeaways for each:

Amazon:

  • Amazon Web Services, the company’s cloud platform, grew 13% year over year, meeting analysts’ expectations and up sequentially. Larger new deals also accelerated, the company said in its conference call.
  • Earnings per share of $1 and revenue of $169.96 billion both easily beat the FactSet consensus view.
  • Overall revenue climbed 13.9% year over year.
  • Advertising revenue rose 26%, better than analysts had expected.
  • Free cash flow and international revenue both rose.
  • The company said its retail business enjoyed a record-breaking holiday shopping season.
  • Amazon said it expects Q1 revenues of $138 billion to $143.5 billion, versus the $142.01 billion FactSet consensus.

Apple:

  • Earnings of $2.18 per share and revenue of $119.6 billion both beat FactSet consensus     
  • Overall quarterly revenue rose 2% year over year. Analysts had expected another declin
  • Fiscal Q1 iPhone revenue of $69.7 billion came in ahead of consensus for $67.9 billion and was up year over year
  • China revenue fell 13% year over year, and CEO Tim Cook told CNBC part of that was due to the strong dollar. He emphasized the company’s strength in phone popularity there.
  • Services revenue of $23.2 billion beat estimates and rose 11% year over year.
  • In its conference call, Apple said iPhone sales this quarter would be similar to last year’s $51.33 billion in revenue, reflecting outperformance last year as demand improved after the pandemic, CNBC reported. This weighed further on shares after the initial earnings report.

Meta Platforms:

  • Earnings of $5.33 per share and revenue of $40.11 billion both easily beat FactSet consensus.
  • Revenue rose 24.7% year over year.
  • Facebook daily active users reached 2.11 billion on average for December, up 6% year over year.
  • Ad impressions rose 23% year over year.
  • Meta initiated a $0.50 cash dividend per share of outstanding common stock payable March 26.
  • Meta left fiscal 2024 expenses guidance unchanged from the previous estimate, driven by investments in servers and data centers as it invests in AI.
  •  The company announced a $50 billion buyback plan increase.

Other key takeaways include signs that Microsoft’s (MSFT) Azure cloud platform may be gaining share versus AWS, considering Azure grew 30% last quarter. The iPhone remained strong despite Apple’s struggles in China. Meta’s expenses are closely watched, so the unchanged guidance there could please investors.

Additionally, Meta may be gaining on Alphabet (GOOGL) in digital advertising, but Meta continues to lose money in its Reality Labs unit, part of its metaverse business. Apple’s double-digit services division growth remained a positive highlight because iPhone replacement cycles keep getting extended. This puts more emphasis on the blades, rather than the razor, so to speak.

Earnings don’t slow next week but lose some headline grabbers. No more mega caps report until Nvidia (NVDA) on February 21, according to Earnings Whispers. Major companies reporting next week include Caterpillar (CAT), McDonald’s (MCD), Eli Lilly (LLY), Uber (UBER), and Ford (F).

Falling Treasury yields helped the Dow Jones Industrial Average® ($DJI) post its third record-high close of the week Thursday. All the major indexes closed near their highs for the day and volume was above average, possibly a sign that the rebound from Wednesday’s Federal Reserve rate announcement-related losses had  decent conviction behind it.

Stocks on the move early Friday include:

  • Exxon Mobil (XOM) rose slightly in premarket trading as earnings per share (EPS) beat analysts’ expectations and revenue came up short. Profit narrowed due to lower crude oil prices during the quarter, and XOM reported flat crude production from a year earlier. Combined production in the U.S. Permian Basin and Guyana grew 18% from a year ago, XOM said.
  • Shares of Chevron (CVX) rose almost 1% after also beating analysts on EPS but missing on revenue. Permian Basin production rose 10% on the year, Chevron said.

What to watch

Data docket: Next week is fairly light for numbers. There’s no major U.S. data at all Monday and Tuesday, and even when reports filter in later next week they’re mostly ho-hum affairs like Consumer Credit and Trade Balance. The week after next is more significant, featuring consumer and producer prices along with retail sales.

This morning brings University of Michigan Consumer Sentiment for January. The headline is expected to be steady 78.8, according to Briefing.com. Historically, this remains low, but it’s risen over the last year. A year ago in January, sentiment was 68.5, and this year’s preliminary January reading was the highest since mid-2021.

And even though December is now distant in the rear-view mirror, one key year-end data point arrives this morning.  December Factory Orders at 10 a.m. ET is expected to show a 0.3% increase, Briefing.com said. The metric to watch for is new orders for nondefense capital goods, a proxy for business spending. It rose 0.8% in November.

Overseas, China’s stock market had another rough outing, falling 6.2% for the week. European stocks are on pace for slight weekly gains.

Eye on the Fed

Early today, futures trading pegged chances at 19.5% for the FOMC cutting rates by 25 basis points following the March 19–20 meeting, according to the CME FedWatch Tool. The market prices in a 71% chance the funds rate will be lower than now after the Fed’s May meeting.

CHART OF THE DAY:  KEEPING PACE: The S&P 500 Equal Weight index (SPXEW-purple line) is generally running neck-and-neck with the S&P 500 (SPX-candlesticks) over the last month, perhaps a sign that the rally has broadened beyond mega-caps. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Braces case? Like a kid whose teeth desperately need an orthodontist’s attention, there’s a misalignment between the Fed and the market. Despite the FOMC saying this week there won’t be rate cuts until it’s more confident inflation is on a sustainable path toward 2%, futures trading builds in expectations for aggressive rate cuts. If the FOMC’s goal was to clamp down hopes for a March rate cut, it appeared to succeed. If it wanted to put a stake in ideas that there could be as many as six rate cuts in 2024, it failed, at least for now. As of Thursday, the CME FedWatch Tool still indicates firm chances that the target range could drop to between 3.5% and 4% by year-end, down from the current 5.25% to 5.5%. The market predicts nearly 100% odds that rates will fall by the May meeting, and high probability of a 75 basis point drop from current levels by June. If March is off the table, then getting to 50 basis points by May or 75 by June would imply a 50 basis point cut at either the May or June meeting. Considering Powell’s cautious tone, a 50 basis point cut anytime soon seems unlikely barring a major economic blow. And Powell is generally considered among the more dovish FOMC members.

Treasury boost: Yesterday’s regional bank softness could help explain a rally in the Treasury market that sent the 10-year Treasury yield down below 3.9% to its lowest close in more than a month. Worries about banks may have reminded investors of last spring’s financial industry jitters, leading some to seek perceived safe havens like Treasuries. Gold, another so-called “safe haven,” posted its highest close so far this year Thursday.

Calendar

February 5: Expected earnings from Tyson Foods (TSN), Caterpillar (CAT), and McDonald’s (MCD).

February 6: Expected earnings from DuPont (DD), Eli Lilly (LLY), Spotify (SPOT), and Ford (F).

February 7: December Consumer Credit and expected earnings from Uber (UBER), Alibaba (BABA), CVS Health (CVS), Bunge (BG), and Yum Brands (YUM).

February 8: Expected earnings from Baxter (BAX), ConocoPhillips (COP), Philip Morris (PM), Ralph Lauren (RL), Zimmer Biomet (ZBH), and Under Armour (UAA).

February 9: Expected earnings from PepsiCo (PEP).

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc. (“Schwab”) and TD Ameritrade, Inc., members SIPC are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.

Print

Key Takeaways

  • Job growth was 353,000 for January, and also revised for December and November
  • Apple falls as analysts mull weak China sales, iPhone forecast, but Meta, Amazon soar

  • Meta climbs 17% in premarket trading after company declares first dividend

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