Watch the bond market for warnings signs: Strategist

US stock futures (ES=F, NQ=F, YM=F) fell lower this morning, and Treasury yields (^FVX, ^TNX, ^TYX) rose as investors grapple with the likely reality of a more hawkish Federal Reserve after December's jobs report came in stronger than expected. The US economy added 256,000 jobs in December, crushing economist estimates of 165,000 jobs, while the unemployment rate unexpectedly moved lower to 4.1%. Interactive Brokers chief strategist Steve Sosnick and EY chief economist Greg Daco sit down with Morning Brief Hosts Seana Smith and Brad Smith to break down the economic data print and what it means for investors. "The problem here now is if you were looking for [interest] rate cuts based on a weakening labor market, this fits in with the Fed [Federal Reserve] rhetoric that we've heard. Stop looking for those. It's not going to happen, at least in the immediate term," Sosnick says, adding, "Unfortunately for stocks, the bond market doesn't like that." The strategist goes on to outline: "In theory, stocks should like a stronger economy, but in reality, what we're getting is an economy that seems to be keeping jobs in there. I think there was the hope that labor was going to get the Fed onto a more accommodative footing, and this doesn't do that right now." Daco describes the current labor market as "the paradox of 2025," explaining, "It's a robust but frozen labor market, one in which we're not seeing much churn in terms of the labor force. We're seeing very little entry into the labor market, we're seeing very little exit out of the labor force ... It's reflective of businesses being very cautious as to their hiring needs." The economist characterizes this "steady but slightly cooling" labor trend as "very encouraging" for US central bank officials: "I think the attention will actually pivot back towards inflation developments over the course of the next three months. And I wouldn't be surprised that we see some positive inflation surprise with inflation moving lower over the first three months of the year on base effects, which could lead to a reassessment of the fed trajectory by very reactive policymakers."
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