Unemployment, the Markets, and Taxes

The stock and bond markets started to cozy up to the idea that employment would begin to soften, and wages would moderate even more.  This would reduce inflationary pressures and allow the Federal Reserve to reduce interest rates at a faster pace than was previously expected.

That was until the Labor Department announced a blockbuster jobs report on February 3^rd which showed over 500,000 people were hired in January (far exceeding the median estimate of 190,000) and the U.S. unemployment rate ticked down to 3.4% which is lower than any other time over the past 53 years. 

This surprise report caused interest rates to rise and bond and stock prices to fall.  The exceptionally strong jobs report certainly was unexpected, however we believe the Federal Reserve is nearing the end of its rate hiking cycle and interest rates will moderate over the course of the year.  This would be welcome news to both the bond and stock markets.  One of our main concerns is that the Federal Reserve goes too far and pushes the economy into a moderate to deep recession as many financial indicators, other than employment, point to an already slowing economy.  If this were to happen, interest rates would likely fall quickly benefitting intermediate to longer-term bonds.  Last year rising interest rates had a devasting impact on bond prices, but it cuts both ways.  Rapidly falling interest rates would help bond prices recover some of last year’s losses.  Therefore, the bond market is fixated on the unemployment rate and wage growth.

Tax season is upon us, and this is a reminder that most of the 1099 tax statements for retirement accounts have been distributed by Charles Schwab.  For those of you who have non-retirement accounts, expect to see your 1099’s for those accounts by the end of February. 

Luckily, we survived another Minneapolis artic blast and are enjoying the warmer temperatures and sunshine! When this was written, Punxsutawney Phil, the beloved groundhog, predicted another six more weeks of winter. It may be time to move Bond&Devick to a warmer climate!  We hope that wherever you are, you are warm and doing well.

The Bond&Devick Team