The labor market heard everyone calling it weak and decided to prove the haters wrong.

• The US added 256,000 jobs in December—far ahead of economists’ expectations of 153,000 jobs, and well above the 212,000 added in November, according to the Labor Department.
• And that wasn’t all: The unemployment rate dipped to 4.1%, about one-tenth of a point below expectations.
• Wages steadily grew, too. Average hourly earnings increased 0.3% last month, meeting Wall Street’s expectations.

The numbers are great news for the economy and the many Americans who’ve spent hours painfully scrolling through Indeed over the past few years. Lower unemployment means that hiring is continuing to rise, even in the face of sticky inflation and geopolitical upheaval.

But you might not get good news vibes looking at the sea of red across major indexes today.

Good news for the economy is bad news for stocks

Stocks plunged and bond yields soared in reaction to today’s piping hot labor report.

While a resilient labor market is great news for job hunters, it means that the Federal Reserve is unlikely to cut interest rates at its meeting later this month, given that central bankers don’t want to stimulate the economy too much and reignite inflation.

What the pros are saying: “Although the stock market doesn’t need lower rates in order to go higher, lower rates are a tailwind for equities and, more importantly, a Federal Reserve bank that is easing policy is always a better environment for equity investors than one where they are tightening policy (or leaving policy unchanged),” wrote Chief Investment Officer for Northlight Asset Management Chris Zaccarelli in a note today.

The latest market decline is another reminder that investors perhaps got a little overzealous about the Fed’s first few rate cuts. “Markets are their own worst enemy when it comes to policy moves by the Federal Reserve,” explained Managing Partner for Harris Financial Group Jamie Cox. “Markets tried to front run the Fed on the level of interest rates and are now paying the price.”

While investors may be grimacing, Federal Reserve Chair Jerome Powell is probably smiling (not that we’ve ever seen him exhibit joy ourselves)— the resoundingly hot data means his soft landing is on track, and should make his next rate cut decision a little easier.—LB

🟢 What’s up

• Walgreens Boots Alliance was the worst-performing stock of 2024, but the new year has been kind. Shares of the drugstore chain soared 27.55% on a strong earnings report.
• Delta Air Lines beat analyst expectations on both revenue and earnings last quarter, and forecast that 2025 will be the “best financial year in our history.” Shares climbed 9%.
• Sweetgreen rose 2.73% following an upgrade from Citi analysts who think the company’s investment in robotic kitchens is money well spent.
• Constellation Energy popped 25.16% a day after announcing it will acquire privately-held Calpine $26.6 billion to create the largest clean energy provider in the US.

What’s down

• Semiconductor stocks took a hit from a report from Bloomberg that the Biden administration plans to implement chip export restrictions before the president leaves office. Nvidia fell 3%, AMD dropped 4.76%, and Broadcom lost 2.18%.
• Jefferies Financial Group slid 10.79% after announcing weaker-than-expected fourth quarter earnings, despite the fact that investment banking revenue rose 73%.
• Hold my beer: Constellation Brands slipped 17.09% following a tough quarter for the alcoholic beverage maker, which also cut its annual sales forecast.

It’s too early for Dictionary.com to name its 2025 Word of the Year, but we’re going to make an early prediction and say that it might just be “tariffs.”

The T-word has been on everyone’s lips in the months following Donald Trump’s election victory, but as of now we’ve got more questions than answers. Thankfully, our friends over at Maxinomics can help clear things up.

They broke down the history of tariffs—including why trucks account for 80% of all US auto sales thanks to a German tariff on US chickens—and what the future may hold if new tariffs are put in place.

Take a look at the latest Maxinomics deep dive to learn more.

The devastating wildfires in Southern California continue to rage on, leaving thousands of homes and businesses destroyed and at least 10 people dead.

Investors are beginning to calibrate the toll of the deadly blaze, which could cost up to $50 billion in economic damages, according to JPMorgan. Accuweather’s latest estimate was even more startling: The firm now anticipates $150 billion in damages.

Insurance stocks with exposure to California plummeted today. Allstate sank 5.61%, Travelers Company dropped 4.26%, and American International Group lost 1.27%.

The logic is pretty obvious: With billions in damage to some of the wealthiest neighborhoods in the country, insurance companies are going to have to shell out some serious cash. Yet some insurers have more exposure to California than others—Allstate has the largest share (6%) of California’s home insurance market, according to JPMorgan. And roughly 80% of insurer Mercury General’s premiums came from California in 2024, which is why the stock nosedived 19.88% today.

Utility stocks whose businesses are based in California also tumbled. Edison International, which owns the utility operator Southern California Edison, which serves LA, sank 6.49%. Northern California utility Pacific Gas and Electric Company (PG&E) dropped 10.81%.

Keep in mind: Not only do utility companies have to cut power during the wildfires, but they can be liable for damages if their power lines contributed to the spread of fires. PG&E was forced to file for bankruptcy in 2019 partially because of the $30 billion in legal claims for its role in previous wildfires, while shares of Hawaiian Electric plummeted following payouts for damages due to its role in the devastating August 2023 fires in Maui. However, there is no evidence at this time that any utility companies contributed to the fires.

Someone’s got to rebuild

On the flipside, homebuilder stocks such as Toll Brothers, KB Home, Lennar Corp., and PulteGroup all gained today. Investors expect demand for homebuilding across the region to soar once rebuilding efforts begin after the blaze is finally contained.

Until the smoke clears, it's hard to know exactly how much damage was done, precisely how much insurance companies will be on the hook for, or how much homebuilders will really benefit in the months ahead. Today’s market moves are a kneejerk reaction that investors may want to steer clear of.—LB

If you’d like to donate to relief efforts for those affected by wildfires, GoFundMe.org has started a 2025 Wildfire Relief Fund, as well as a hub of verified GoFundMe pages related specifically to the wildfires in California.

• Don’t call it a comeback: Chuck E. Cheese may have gone bankrupt four years ago, but the brand has bounced back with a new subscription service.
• As if wildfires and polar vortexes weren’t enough, a winter storm is about to sweep through the southeastern US.
• Plans to launch Venu, a sports streaming service with Disney, Fox, and Warner Bros. behind it, will be canceled in light of Disney’s new deal with FuboTV.
• Eli Lily and Andreessen Horowitz have joined forces to launch a $500 million fund to invest in companies combining AI and healthcare (an increasingly popular investment theme we recently wrote about).
• 22% of Americans are participating in Dry January—great news for wallets and waistlines, terrible news for alcoholic beverage makers.
• Wondering how to invest in 2025? Some of the best financial minds in the business may be able to help.

We’ve got a full docket of economic data coming in hot next week, including PPI on Tuesday, followed by CPI on Wednesday. The latter marks the final bit of insight into the state of inflation ahead of the Federal Reserve’s next meeting on Jan. 29, and will be a key indicator of how the central bank will approach rate cuts in the coming year.

After that, we’ll get December retail sales, as well as both the import and export price indexes on Thursday, not to mention a look at real estate with the NAHB housing market index. Speaking of, the week wraps up with housing starts and building permits on Friday, plus a peek at the manufacturing industry with December’s industrial production and capacity utilization report.

As for earnings, a new season officially begins next week with bank earnings. The financial industry seems poised for a strong 2025 thanks to a slow 2024 (making year over year earnings comparisons easier to beat) and rising M&A activity.

Monday: KB Home

Tuesday: Applied Digital

Wednesday: JP Morgan, Goldman Sachs, BlackRock, Citigroup, Wells Fargo, Bank of New York Mellon

Thursday: Bank of America, Morgan Stanley, US Bancorp, PNC Financial Services, M&T Bank, TSMC, Infosys, JB Hunt Transport Services

Friday: Citizens Financial Group, Webster Financial, State Street, Truist Financial, Fastenal Co., Schlumberger