Market Update: January 11th, 2024

Welcome to the new year with market sentiment strong but potential job weakness numbers in both Canada and the US are quelling the thoughts of another market rally.

Topics

Employment Updates: Not Great

Start of 2024 and Reasons for Muted Growth

Employment Updates: Not Great

Canada Employment 

Canadian employment was unchanged from December as the unemployment rate held steady at 5.8%. The actual employment rate fell 0.2% to 61.6% from 61.8%, due to population growth in 15 or older people of 74,000 people or (+0.2%). In Canada, the trend remains the same, we are simply just not adding jobs, but the working population continues to grow. This is not a strong trend and while hiring does slow in December, so does firing. The first couple months of the year will dictate how many companies were either waiting until the new year to hire or waiting to fire. We assume there are more companies in the latter.

US Employment

In the US, the headline numbers were great adding 216,000 jobs in December! This was more than expected but not all is sunshine and rainbows when you investigate the employment situation. While December was good, they revised the two previous months' jobs down by 71,000. Which would bring everything slightly below expectations. Also, the trend is not their friend, in 2021 the US added 6 million jobs, in 2022 4 million jobs, and in 2023 came in at 2 million jobs. 

Once again gains were driven by Education/Healthcare, Leisure/Hospitality, and Government. The more cyclical areas are not performing well as they battle higher interest rates and companies trying to cut costs. Wages rose in the month of December also which may be a signal for further job cuts to come in the future.

In a recent survey by resumebuilder.com, 4 out of 10 companies are planning to cut jobs in 2024. With this 1 in 10 expect those job cuts to be greater than 30% of their workforce.

Start of the year

So far, 2024 has started with a lot of optimism that 2023 ended with. Especially around the new Bitcoin ETFs approval which came out on January 10th, 2024. Driving a nice rally in risk assets. We are sitting around the highs of the last week of December. We would caution against this optimism going forward. 

Reasons for Muted Growth

Employment

The employment situation is weakening in the US and has been a strong catalyst for this market as it continued to surprise. Unfortunately, this does not look as stable in 2024 as the optimistic behavior to the end of 2023.

Inflation

US inflation came in slightly higher than expected on January 11th, 2024. This does not appear to show inflation growing hot again but it may be more resilient than thought. The market was predicting rate cuts in the US, and while this will happen it may not be as many as thought at the end of 2023.

Valuations

The valuations are stretched on many metrics. We are just sitting at the “high” range, this doesn’t mean they can’t go higher but if they do they would be in the “higher than high” range. 

Summary

Sentiment does remain positive, but we would expect muted returns in the market. For overall market growth, we would need employment to strengthen or solidify and signs of inflation slowing more dramatically. This just does not appear to be what the data is telling us, not a huge cause for panic because employment is not crashing, and inflation is not running away. 

Sincerely,

Justin, Konrad, and Merriel

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Content Sources: Bloomberg, Trading Economics, Yahoo Finance, BCA Research

Disclaimer: This newsletter is solely the work of Konrad Kopacz and Justin Lim for the private information of their clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon.

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