Stocks Having a Dull Week to Begin New Year; NFP Report a Mixed Bag

Good news may be bad news, but bad news is probably good.

So far, just three days into the new year, stock markets look eerily similar to the old year. Thursday’s session served as a reminder that issues plaguing US and global economies have not magically vanished with the turning of the calendar.

Inflation remains the #1 problem for individuals and businesses alike, followed by the Fed’s relentless efforts to expunge rising prices from the landscape. Friday’s focus will be employment, with December’s Non-farm payroll (NFP) out an hour prior to US market open.

Expectations are for 200,000-230,000 jobs to have been created during the final month of 2022. Job creation, according to the Bureau of Labor Statistics’ (BLS) Establishment Survey (businesses) has been brisk, rising every month since April, 2020, with the exception of December, 2020, which registered the only monthly decline in the past 33 months. In November 2022, total non-farm employment increased by 263,000 to reach 100.7 percent of its level in February 2020, the month before the start of the COVID-19 pandemic and the brief recession that resulted from it.

December is probably going to be more of the same, to the great disappointment of the Federal Reserve, because, in their view, a strong labor market fuels inflation. With a robust economy creating jobs and little unemployment - the current rate is 3.7% - more money is pumped into the system and prices rise on strong demand.

That at least is the current narrative, though the Household Survey (individuals) conducted by the very same BLS shows employment to be essentially flat through much of 2022, a discrepancy of some 2.3 million jobs. Opinions vary on the veracity of the two surveys, though a healthy skepticism of the BLS as a reliable evaluator of the actual employment picture has been prevalent for decades. The current gap between the two surveys only feeds into argument of the doubters and deniers.

For what it’s worth, Wall Street relies largely on the establishment survey to gauge the employment sector. Whether that is the wisest of choices is open to debate.

According to the just-released announcement of December NFP:

Total nonfarm payroll employment increased by 223,000 in December, and the unemployment rate edged down to 3.5 percent, the U.S. Bureau of Labor Statistics reported today.

The report - the lowest empolyment figures since the negative reading in December, 2020 - is probably good for stocks because traders believe the Fed will view this as evidence that the economy is cooling and cause them to continue raising interest rates. The Fed is expected to raise the target federal funds rate by 1/2 percent, from 4.25-4.50% to 4.75-5.00% at the next FOMC meeting January 31 - February 1, though this report alone is unlikely to change that.

On the release, stock futures unexpectedly rose sharply, driven not by the unsurprising headline number but by average hourly earnings, which grew just 0.3% month-over-month in December, down from 0.6% (revised to 0.4%) in November and below the 0.4% growth expected. Dow futures soar 300 points, S&P futures were up 35 and NASDAQ futures gained over 100 points on the news.

That should help stocks to some degree, as wage growth is a key component of the inflation calculus. Slowing wage increases should be seen as a positive development by the Fed, tempering the anti-inflation quest.

With the last trading session of the week approaching, it appears stocks are going to read negative to start the year. As of Thursday’s close, the Dow was down 217 points for the week, the NASDAQ off 161, the S&P 31 points lower, and the NYSE Composite ahead 41 points.

Should stocks finish lower on Friday, it would be the fourth losing week of the past five for the Dow and NYSE, and five straight for the NASDAQ and S&P 500.

December’s NFP appears to be a mixed bag of sorts, though it is, by itself, not giving enough of a signal to warrant changes in the Fed’s overall plan. Stocks are likely to vacillate through the session without much direction, though the bias, after the lackluster start so far, is probably going to be slightly positive.

Happy Hunting!

At the Close, Thursday, January 6, 2023:

Dow: 32,930.08, -339.69 (-1.02%)

NASDAQ: 10,305.24, -153.52 (-1.47%)

S&P 500: 3,808.10, -44.87 (-1.16%)

NYSE Composite: 15,225.40, -124.90 (-0.81%)

This post was published simultaneously at Downtown Magazine.