How to play stocks as nonfarm payrolls increase in January?

S&P 500 ended down on Friday after the Bureau of Labour Statistics said nonfarm payrolls in January nearly doubled versus the previous month.

Analyst reacts to the monthly jobs report

Nonfarm payrolls climbed sharply to 517,000 in January – well above 187,000 that economists had forecast and 260,000 recorded in December.

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Continued strength of the labour market renews concerns that the central bank will remain hawkish, which signals more pain ahead for the equities market. On top of it, the earnings picture doesn’t paint a rosy picture for stocks either, as per Morgan Stanley’s Mike Wilson.

We have evidence that the trough rate of change in not here yet. We have several more quarters of further disappointment and we think that disappointment could accelerate in the first quarter of this year.

Unemployment now at lowest level in decades

Year-to-date, the benchmark index is currently up 8.0% – a strength that famed investor Jim Cramer also recommends trimming into.

Unemployment rate last month fell to 3.4%; lowest since May 1969 and labour force participation increased to 62.4%. On “Bloomberg The Open”, Wilson also added:

Inflation is coming down faster than costs. That mismatch is leading to significant negative operating leverage. That feature is either underappreciated or misunderstood. So, people will be surprised on the downside on profitability.

For the month, average hourly earnings in January gained 0.3%, in line with expectations. Earlier this week, Fed Chair Powell also ruled out rate cuts in the back half of this year that further takes a bite out of the bull case (read more).