US employment data came out unexpectedly strong last week. Peter Boockvar explains why the initial market reaction was so negative, even though the broader trends didn’t change much.

Key Points:

  • US payrolls grew 263,000 in November and the unemployment rate held steady at 3.7%.
  • The labor force shrank by 186,000, with the participation rate falling for a third straight month.
  • Average hourly earnings rose more than expected, 0.6% for the month and 5.1% in the last year.
  • However, a drop in hours worked meant slower growth in average weekly earnings, just 0.3% for the month and 3.9% year over year.
  • Losses in retail and temporary help may be a leading indicator of recession.
  • Smoothing out the monthly noise, job growth is clearly slowing over the last year.

Today’s data points to stickier inflation because wages have a stronger effect on service prices. This may soften market expectations the Fed will take its foot off the brake in the near future.

 

US Economy

 

  • The S&P Global US PMI report showed a faster pace of contraction in business activity this month.

 

 

  • Manufacturing:

 

 

  • Services:

 

 

  • October durable goods orders surprised to the upside.

 

 

  • The yield curve inversion continues to deepen

 

 

  • Goldman still does not expect a recession next year.

 

 

  • The US profit cycle is decelerating, which could lead to further earnings downgrades in the months ahead.

 

 

  • Demand keeps deteriorating.

 

 

  • The Conference Board’s consumer sentiment index declined this month.

 

 

  • The gap versus the U. Michigan indicator remains near record levels, …

 

 

  • Home prices declined again in September (which we knew from other indicators).

 

 

  • The market is still pricing rate cuts in the second half of next year.

 

 

  • Pending home sales are down almost 37% from a year ago.

 

 

  • Consumer spending remains robust despite elevated prices
  • Savings are expected to keep falling as consumers spend their cash pile. JP Morgan sees excess savings depleted by mid-2023.

 

 

  • Credit card debt has risen sharply this year (which has generated a lot of hype in the media), …

 

 

  • Food inflation should ease over the next few months.

 

 

  • The ISM manufacturing PMI dipped into contraction territory for the first time since early 2020.

 

 

  • Costs are now falling, …

 

 

… which should help ease goods inflation (2 charts).

 

Source: Oxford Economics

 

 

The Fed

 

Markets interpreted Chair Powell’s comments as being on the dovish side.

 

Source: CNBC   Read full article  

 

  • Treasury yields tumbled.
  • The US Dollar dropped
  • Gold and Silver jumped
  • Across the board, equities in all sectors went higher on big volume
  • Stocks and bonds also got a boost from a softer-than-expected November ADP private payrolls report. Hiring appears to be slowing rapidly.

 

 

Source: CNBC   Read full article

 

  • Job growth has been held up by demand from leisure and hospitality firms.
  • Job openings declined in October.

 

 

  • Tech recruiters are posting fewer jobs.

 

 

  • Chicago-area manufacturing activity is plunging, …

 

 

  • signaling a significant slowdown at the national level.

 

 

Market Data

 

  • Gold funds saw their first inflows in 22 weeks.

 

Source: BofA Global Research  

 

  • Gold mining stocks are starting to outperform, similar to the silver/gold price ratio.

 

Source: Aazan Habib, Paradigm Capital 

 

  • Gold futures faced a minor setback at the 200-day moving average.

 

 

  • The rising dollar and high real rates explained most of gold’s losses this year.

 

Source: Numera Analytics  

 

  • The S&P 500 is at resistance.

 

 

  • Foreigners have been selling US equities and buying Treasuries.

 

 

  • Here is an example of how China matters for US equities.

 

Source: @technology, @vladsavov   Read full article

 

  • US stocks are expensive relative to the past 20 years’ valuations, as well as to other markets.

 

 

  • The S&P 500 closed above the 200-day moving average and is now at the downtrend resistance.

 

 

  • The S&P 500 is holding long-term support with improving breadth and momentum.

 

 

  • JP Morgan sees much lower earnings next year than the consensus estimate.

 

 

Quote of the Week

 

“The best thing about the future is that it comes one day at a time.” – Abraham Lincoln

 

Picture of the Week

 

 

 

All Content Is the Opinion of Brian J. Decker