Muted January Hiring Points to Solid Stock Gains

The labor market started 2025 on weak footing…

Given the focus this week on inflation reports from the U.S. Bureau of Labor Statistics, I thought this morning would be an opportune moment to circle back on last week’s jobs data.

You see, when the numbers were released, all the attention centered on the least stock-market friendly pieces of data. The naysayers focused on the drop in the unemployment rate and higher-than-expected average-hourly-earnings. They said both outcomes would lead to an inflation rebound, potentially driving borrowing costs higher.

What the negative nellies didn’t focus on was the broader trend in hiring. In January, employers hired just 143,000 new workers. That was well below the average monthly gain of 166,000 in 2024 and the 2017-2019 average of 177,000.

Not only that, but last month’s result was far weaker than the average we’ve seen for January since 2017. According to the BLS, we typically see 251,000 people hired in the first 31 days of each year. Not only that, but the first quarter tends to be the strongest of the year for hiring with an average of 927,000 people finding new work. That means there’s a lot of catchup to be done if we’re going to experience normal trends.

Yet, despite all these cautious data points, there’s another statistical event I noticed. It has only happened five times since 2010. And typically, it leads to above average returns for the S&P 500 Index over the following 12 months.

But don’t take my word for it, let’s look at what the data’s telling us…

So, as I stated above, Friday’s BLS report showed that non-farm payrolls increased by 143,000. Again, that was weaker than the monthly average gain we’ve seen between 2017 and 2024 and below typically seasonality. Now, oner would think that such a weak start to the year would imply deteriorating economic growth. So, I wanted to go back and find similar instances to observe the outcomes for stocks…

The above chart shows us the gain for every January between the end of the financial crisis through last year. I searched the numbers for each instance where the monthly employment gain was below the averages we discussed above. As you’ll notice there were less than 150,000 employees added in 2010, 2011, 2016, 2018, and 2024.

After finding the target years, I then compiled the return for the S&P 500 in the following 12 months. Take a look…

For the above results, I used the S&P 500’s end of January closing price for the year reported. I then ran the return total through the end of following January. The average return is based on the total numbers divided by five while the success rate indicates the chance of a positive outcome. As you can see, there’s an 80% chance of generating an 11.4% gain over the next year. That’s not too shabby when we consider the S&P 500 has averaged a 9.5% return annually since 1928.

At the end of the day, the hiring picture is continuing a trend that has been in place for the last four years… the need for new labor is cooling. As excess savings from COVID have been wiped out, people are spending less. In addition, several years of high inflation have made consumers more price conscious. Considering some of that numbers we surveyed, it doesn't appear the job market is as strong as central bank policymakers have thought. If this trend continues, it’s sure to draw lots of calls for gloom and doom from the stock-market haters. But don’t get caught up in all of their drama… because based on the previous data, we should see an above-average return in the S&P 500 over the next 12 months.

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