The Week On Wall Street
A strong Friday rally triggered by fresh signs of moderating inflation pushed stocks into positive territory to begin the new year. The Dow Jones Industrial Average rose 1.46%, while the Standard & Poor’s 500 advanced 1.45%. The Nasdaq Composite index gained 0.98%. The MSCI EAFE index, which tracks developed overseas stock markets, added 0.90%.
A new year did little to change the market’s overall tenor as trading remained choppy. The first two trading sessions of a holiday-shortened week saw major averages swing wildly between gains and losses as investors balanced an improving outlook on inflation against concerns of faltering economic growth. Mega-cap technology and other high-growth names endured the brunt of the selling pressure. Stocks took a decisive turn lower Thursday on strong private payroll growth and declining jobless claims, which heightened fears that the Fed would need to push interest rates higher for longer. However, stocks staged a powerful rally on Friday despite another strong job number, partly due to a deceleration in wage growth.
The Labor Market Juggernaut
The Fed has communicated that it’s looking for weakening in the labor market before it can feel confident higher rates are working to slow inflation. Employment reports last week indicated that the Fed might need to wait a bit longer for evidence of a fading labor market. Automated Data Processing’s (ADP) monthly employment report showed the private sector adding more jobs (235,000) than consensus estimates (153,000), with strong wage gains over the last year (+7.3%). Initial and continuing jobless claims fell in the last week of December and remained at pre-pandemic levels. Finally, the government’s monthly employment report showed employers adding a healthy 223,000 jobs in December.
This Week: Key Economic Data
Thursday: Consumer Price Index (CPI). Jobless Claims.
Friday: Consumer Sentiment.
This Week: Notable Companies Reporting Earnings
Friday: Bank of America Corporation (BAC), JPMorgan Chase & Co. (JPM), Delta Air Lines, Inc. (DAL), UnitedHealth Group Incorporated (UNH), Citigroup, Inc. (C), Wells Fargo & Company (WFC), BlackRock, Inc. (BLK).
The big news this week happens on Thursday. CPI for December will come at 8:30am. All indications point to inflation continuing to cool. This would make a full quarter of declining inflation and certainly a trend. If so, it relieves some pressure on the Fed. They can probably dramatically slow the pace of rate increases or even pause. Stocks would like this. I suspect at least one more quarter point hike from the Fed, sort of like putting a period on the end of a sentence. From there they’ll most likely key in on wage and home inflation, which has begun to cool, albeit slowly. Ultimately corporate earnings should begin to drive the stock market bus this quarter rather than the Fed. Stay tuned…