TD Ameritrade | Dec 01, 2022 10:17AM ET
After yesterday’s huge rally, data early today provided fresh positive confirmation that inflation is becoming less of a problem and focus is shifting to what kind of economy we’ll face in 2023. Right now, the market seems happy with how things are going, and hopes are rising that the Federal Reserve will ease off the gas pedal as we round this final turn.
Yesterday was all about waiting for Federal Reserve Chairman Jerome Powell’s speech. Today could be all about waiting for tomorrow’s Nonfarm Payrolls data, which we’ll see before the open Friday. Analysts anticipate November jobs growth of around 200,000, down from October’s 261,000 but still historically strong (see more below). Trading could be uneventful ahead of the data.
In general, the market would likely view a job number that exceeds expectations as more reason for the Fed to be hawkish, a likely negative for stocks. However, if numbers come in well below consensus on jobs growth, that could spur serious concerns about the economic trajectory.
The best-case scenario, if you’re a bull, is probably a small miss in headline jobs, accompanied by wage growth in line with consensus or slightly below.
h2 Just In/h2In this big data rush before the open, perhaps tops on the list is October Personal Consumption Expenditures (PCE) prices, the Fed’s favored inflation index. Headline PCE inflation rose 0.3%, below the 0.4% Wall Street consensus and the same as in September. Core PCE rose just 0.2%, in line with consensus and down from September’s 0.5%. PCE numbers provided more confirmation that inflation appears to be moderating, and stock index futures jumped on news.
Continued jobless claims offered more evidence. Popping over 1.6 million for first time since early in the year, the report showed even more signs that the job market may also be moderating. Weekly claims of 225,000, however, were below the consensus for nearly 240,000.
In other news:
Continuing our look back at yesterday, Powell certainly had some encouraging words, including that the time to start moderating rate hikes might be as early as the next Federal Open Market Committee (FOMC) meeting December 13-14, and that the central bank doesn’t want to overtighten. Investors might also take note of what Powell said about the Fed’s options, such as raising rates more slowly or holding on “longer,” which would mean keeping rates at high levels over a more extended period.
The Fed has made the mistake before of lowering rates too soon during an inflationary period and most certainly wants to get things right this time. Whether the economy can make a soft landing where unemployment stays low even as inflation comes down is the question. The Fed is in position to do that, Powell said, but investors should note it’s a tricky business and historically, not every Fed Chairman sticks the landing. In fact, the economy may already be experiencing a “rolling” recession, as you’ll see below.
h2 Data Dive/h2By now you’ve seen yesterday’s data, but just a quick go-over and some thoughts.
Fed Spin: If you’re Powell or another FOMC member, your head might’ve been spinning as all the data poured in yesterday morning. The trends were somewhat hard to glean.
For instance, what are investors (and the Fed) to make of Q3 Gross Domestic Product (GDP) climbing to 2.9% in the government’s second estimate (from 2.6% in its first reading), even as pending home sales slid 4.7% month over month in October? Or what about ADP jobs growth slowing to 127,000 in November from 239,000 in October even as JOLTS remained historically high above 10 million?
h2 Reviewing the Market Minutes/h2When a market that’s been so soft for so long has a day like Wednesday, one question to ask is how broad was the rally? Meaning did stocks across various sectors do well, or did a few mega-caps have an outsized impact on index performance? Wednesday’s rally looked robust, embracing every sector.
Gains ranged from 0.6% for energy to 5% for info tech, and advancers led decliners by a 6-1 margin on the New York Stock Exchange (NYSE). Volume far eclipsed average daily levels, another typical sign of health in a rally. In all, November turned into a solid month highlighted by a 5% gain for the S&P 500.
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