The net result of today's one-two data punch is that we may no longer get any rate cuts this year. Just in time for President-elect Trump to take office, who earlier this week said "interest rates are far too high."  

First came the jobs report. The headlines were strong: we added 256,000 jobs last month, and the unemployment rate dipped to 4.1%. Sure, most of that was healthcare, education, and government jobs, while manufacturing employment declined. But markets knew what it meant: the economy may be too strong for the Federal Reserve to deliver the two rate cuts this year that in forecasted back in December.  

After a recent string of stronger data, the market was already starting to price in closer to one rate cut. This morning sealed the deal. And that's even with slight moderation in wage pressures, as average hourly earnings growth cooled to 3.9% year-on-year. In the wake of the report, the 10-year Treasury yield hit 4.78%. The two-year yield, which is more sensitive to near-term Fed moves, jumped 11 basis points!  

And if that wasn't enough, the University of Michigan's 10 a.m. consumer sentiment landed an even bigger blow. The biggest headline? Consumers' five- to ten-year inflation expectations jumped to 3.3%--the highest since 2008. Their one-year expectations also jumped to the same level. And their expectations for the U.S. economy softened, which is a leading indicator for markets and GDP.  

The Fed's next meeting is the week after Trump's inauguration, with a decision due on Wednesday, January 29th. There is no question now of a rate cut. They were likely going to "skip" this month anyway. Now some think they might skip the whole year. Bank of America has reportedly moved to that camp.  

But others aren't so sure. Santander's Stephen Stanley--who has been more hawkish than many on Wall Street in recent years--now finds himself in the more dovish camp. He is expecting an economic slowdown in the first half of the year, which by March's Fed meeting might have resulted in a softer series of numbers that pave the way for more rate cuts.  

The thing is, either scenario (sticky inflation, or softer growth) isn't ideal for the stock market--particularly one whose valuation has been near all-time highs. That's especially true if the inflation expectations increase picked up in both today's survey and the recent ISM business surveys are the result of tariff hikes President Trump is expected to put into place.  

The S&P 500 is down 1.5% today, but interestingly is now basically flat since Election Day, per Bespoke. That's in contrast to the 4% average gains we've seen between the past three election and inauguration days. The Nasdaq is down 2%, and peaked a month ago. The small caps are now down about 10% from their late November highs.  

So yes, from a 30,000-foot point of view, today's jobs report was a strong one. But it's leaving markets with surprisingly little to cheer about.  

See you at 1 p.m! 

Kelly 

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