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As we discussed yesterday, today had the potential to be consequential. Options on the S&P 500 (SPX) were pricing in a roughly 0.9% daily move amid a modest upside bias. As of this morning, they got the direction right, but the trading range fell a bit short of that volatility assessment despite a brief downdraft. The substantial slew of economic data was being taken generally in stride, even if the Supreme Court was not ready to issue a ruling about tariffs today.

On balance, the jobs report was decent. December Nonfarm Payrolls rose by 50,000, below the consensus estimate of 70,000, and the prior two months were revised down by 8,000 and 68,000 respectively. There is little to like there, but the Unemployment Rate dipped to 4.4%, below the 4.5% consensus, while November’s reading was revised down to 4.5% from 4.6%. Some of the improvement in unemployment can be explained by a dip in the Labor Force Participation Rate to 62.4% from 62.5%, but Average Hourly Earnings came with an as-expected monthly rise of 0.3% alongside an upward revision to November’s data from 0.1% to 0.2%.Putting this all together, there is no reason to expect a rate cut at the January 28^th FOMC meeting.The probability for a cut fell from an already-low 12% to 5%, while the likelihood of a cut by April fell to roughly that of a coin flip. 

Some more data arrived at 10 AM ET, though it was accompanied by the news that a key piece of data would not be forthcoming.Around the same time that we learned that the Supreme Court would not be ruling on the legality of many of the Trump tariffs, we also received some modestly encouraging news about consumer opinions from the University of Michigan.Sentiment rose to 54 from 52.9, Current Conditions rose to 52.4 from 50.4, and Expectations rose to 55 from 54.6.None of those are earth-shattering, but they did move in the correct direction.

Also today we processed some conflicting news about housing. Late yesterday, the President ordered Fannie Mae and Freddie Mac to buy $200 billion in mortgage-backed securities.That led to a tightening of the spreads between mortgages and Treasuries by a significant 23 basis points or so, which certainly aids affordability.But various economists believe that a lack of supply is the bigger impediment to reducing housing costs, and we saw both Housing Starts and Building Permits fall on a month-over-month basis, in this case by -4.6% and -0.2% respectively. Perhaps the proposed restrictions on institutional ownership will free up some supply that is currently locked up by large landlords, but as I noted to a reporter at the time, “Remember, the private equity firms can afford very expensive lobbyists.”

Except for a brief hiccup when the Supreme Court pause was announced, stock traders decided that this huge news flow was a net positive.Traders wisely bought the brief dip, then resumed their now-typical chase when the turnaround took hold.The ensuing grind has done nothing to imply that institutional investors were pausing in their activity, particularly in their rotation into more economically sensitive sectors. Materials are the best performing sector in SPX, followed by utilities that are benefitting from Meta Platforms’ (META) move to procure a sizeable amount of electricity to power their AI ambitions. Only healthcare, which is down only fractionally, is sitting out the party. 

This week’s activity, and today’s specifically, should offer a reminder that when push comes to shove, while rate cuts are nice, a stronger economy is preferable. Or, if not, with the current mindset, it’s “heads I win, tails I win.”Rate cut hopes boost the market, so do economic hopes.Note the outperformance of the Russell 2000 (RTY) today.Those smaller, economically sensitive, often unprofitable companies indeed benefit from lower rates, but a rising economic tide is more likely to lift those boats.Investors are betting on the economy.Starting next week, we’ll learn if that is resulting in higher earnings. 

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