Palantir Scores, Amazon Is Sore and What Will BLS Report?
Also, the Fed heads come out and I might just have a new fave.
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We've looked forward to it all week, and here we are: It's January Jobs Day. According to the two Bureau of Labor Statistics employment surveys, which are both released in this report, job creation came back to life in November and December after having slowed to a crawl in mid-2024. Folks may have forgotten that back in August and October, non-farm payrolls, which are pulled from the establishment survey, printed at 78,000 and 43,000 respectively. Those two "weak" months of hiring enveloped a "strong" month of job creation (255,000) back in September.
It's important to keep in mind that these "final" numbers are after a couple of months of sometimes large revisions and that they are rarely actually final. The BLS will often, even the next year, significantly change past data due to faults within the adjustments for things like seasonality and the net birth / death model.
That last one was "known" by most economists to have been wildly off for most of 2023 and 2024. Still, algorithms and human traders alike acted on these employment releases in real time, and central bankers created policy based on what they had. All while knowing that the data is often incorrect and often significantly incorrect at that. Oh, and by the way, the net birth / death model tries to adjust for the birth and death of business, not humans. That question has actually come up in my email before.
Consensus for non-farm payrolls for January is for about 170,000 jobs created. Readers will see below that my estimate is just a few thousand below consensus. The unemployment rate is expected to remain at 4.1%, while underemployment sticks at 7.5% and participation holds at 62.5%. Basically, I am not expecting to see much change in the survey results for January, which often means that we could be in for something out of left field. Guess we'll know more in a few hours.
The Fed
Interestingly, Fed Governors Michelle Bowman and Adriana Kugler will speak publicly later today. Bowman will speak from Milwaukee this morning, while Kugler speaks from Miami around lunchtime. Bowman is expected to speak more on banking regulation, but Kugler will go into various topics and will take questions from the audience. This is most unusual for a "Jobs Day."
Fed officials usually go into hiding on such days and never take questions from an audience on such days as answering questions opens one up to the possibility of saying something without preparation that creates a market reaction.
Currently, Fed Funds futures markets trading in Chicago are pricing in an 86% probability that the FOMC takes no action on short-term rates this March 19, and that the first rate cut of the year will be a quarter-percentage point cut (61% probability) implemented on June 18. A second such rate cut is now priced in (54% likelihood) for Dec. 10. These markets currently see a 14% chance for no rate changes at all for the duration of 2025.
On Thursday...
Dallas Fed Pres. Lorie Logan spoke from Mexico City at the Bank for International Settlements Conference. Logan went in depth into her views of where the economy is and where at least she is on monetary policy. Some of this stuff is gold and has me thinking of becoming a Lorie Logan fan now that superstars such as Loretta Mester and Esther George are gone from the central bank. Dallas does not vote on policy this year but will vote in 2026.
On Thursday, Logan said...
"What if inflation comes in close to 2 percent in coming months? While that would be good news, it wouldn’t necessarily allow the FOMC to cut rates soon, in my view. Suppose, for example, that as the first quarter unfolds, monthly inflation figures come in at a 2 percent annualized rate, labor market indicators hold right where they were all fall, and consumer spending and business investment also stay strong. I’d find it hard to say monetary policy was meaningfully restrictive in that scenario. One aspect of the global higher-rate environment is that the neutral interest rate appears to have moved up, though it’s uncertain exactly how much. On target inflation alongside two quarters of stability in the labor market and demand would strongly suggest that we’re already pretty close to the neutral rate, without much near-term room for further cuts,"
Logan wasn't done....
"While some of the drivers of the neutral rate are purely economic, others such as risk premia and capital flows relate to financial markets. Adjusting neutral rate estimates to account for these financial factors is an inexact science. And so while measures of r-star are a helpful benchmark, it will always be important to take broad financial conditions into account in determining how to set the policy rate to achieve a central bank’s goals."
While Logan's view for potentially lower inflation over the first half of this year is probably the stuff of fantasy, the complexity in her reasoning and the depth of her understanding of the constructs of monetary policy go way beyond the usual level of economic drivel often dished out by other members of the FOMC. She actually "gets" it.
Color me impressed. That said, we will see some cooling in the year over year rate of headline consumer inflation for February and that will offer some folks some hope. This will come after "hot" inflation data for January. This is probably what Logan is optimistically seeing, thinking that the slowdown will take root. I hope she is spot on. The fact is however, that the re-acceleration in headline inflation that bottomed in September will likely only pause for one month in February and then get back on its horse for at least a few more months in March.
Marketplace
The S&P 500 printed a third consecutive day of gains on Thursday after recovering from that Friday / Monday swoon. Readers are reminded that we refrained from calling a change in trend at that point as market internal did not support that weakness. So far so good. Equity traders were not very decisive at all the day before the jobs numbers.
While the S&P 500 tacked on 0.36%, the Nasdaq Composite was able to gain 0.51%. The gains were narrow, however, as the Russell 2000 gave up 0.39% and the S&P Midcap 400 essentially closed out the day unchanged (-0.01%). Eight of the 11 S&P sector SPDR exchange-traded funds shaded into the green on Thursday led by the Financials XLF at +0.83%. Though only three of these funds closed in the red on Thursday, Energy XLE gave up 1.84% as Health Care XLV gave back 0.9%.
Looking at breadth, losers beat winners by just a smidgen at both the NYSE and the Nasdaq. Advancing volume, however, took a 59.3% share of composite Nasdaq-listed trade, but just a 46.6% share of composite NYSE-listed activity. Aggregate trading volume nudged slightly higher on a day over day basis for names domiciled at 11 Wall Street but ebbed just a tad for names domiciled up at Times Square.
Keep on Rockin', Palantir
Late Wednesday, DefenseScoop reported that Palantir Technologies PLTR and Enabled Intelligence (an AI start-up) announced a new partnership that would target the enhancement of the quality of data necessary to train large language models used by the U.S. Defense and Intelligence communities.
Under the new agreement, federal government users of the Palantir Foundry platform will be able to request data labeling services from Enabled Intelligence. This in theory, will improve the quality and accuracy of the data being analyzed and take AI modeling to a greater level of reliability. PLTR stock gained 9.8% on Thursday closing at $111.28, after gaining 24% on Tuesday. That puts PLTR up 47.1% year to date for those keeping score. Yes, it's still early February. At zero-dark this morning, I saw PLTR cross my tape with a $114 handle.
Buy The Dip?
Amazon AMZN shares are trading lower this morning. The company decisively beat estimates for both Q4 sales and Q4 profitability. However, AWS just missed the mark, which put it in line with what we saw from Microsoft's MSFT Azure and Alphabet's GOOGL Google Cloud. Additionally, revenue guidance for the current quarter was conservative as the firm made an unusually large allowance for a negative impact from currency exchange rates. I am long the stock, and I did not find a lot in the release that scared me off.
January Employment Situation (08:30 ET)
Non-Farm Payrolls: Expecting 162K, Last 256K.
Unemployment Rate: Expecting 4.1%, Last 4.1%.
Underemployment Rate: Expecting 7.5%, Last 7.5%.
Participation Rate: Expecting 62.5%, Last 62.5%.
Average Hourly Earnings: Expecting 3.8% y/y, Last 3.9% y/y.
Average Weekly Hours: Expecting 34.3, last 34.3 hours.
Economics (All Times Eastern)
10:00 - U of M Consumer Sentiment (Feb-adv): Expecting 71.5, Last 71.1.
10:00 - U of M One Year Inflation Expectations (Feb-adv): Expecting 3.4%, Last 3.3%.
10:00 - U of M Five Year Inflation Expectations (feb-adv): Expecting 3.3%, Last 3.2%.
10:00 - Wholesale Inventories (Dec): Expecting -0.5% m/m, Last -0.1% m/m.
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 582.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 479.
3:00 - Consumer Credit (Dec): Last $-7.49B.
The Fed (All Times Eastern)
09:25 - Speaker: Reserve Board Gov. Michelle Bowman.
12:00 - Speaker: Reserve Board Gov. Adriana Kugler.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: CBOE (2.12), NWL (.14)
At the time of publication, Guilfoyle was long PLTR, AMZN equity.
