• With over half a million jobs created, the January jobs report far surpassed economists’ expectations. The labor market is far from signaling a recession.

 

 

  • The unemployment rate hit its lowest level since 1969.

 

 

  • Payroll figures surprised to the upside for ten months in a row.

 

 

  • Excess retirements persist.

 

 

  • Employment in some sectors hasn’t yet recovered from COVID-related losses.
  • Next, we have some updates on inflation.
  • Gains in labor costs will keep services inflation elevated (2 charts).

 

Source: Wells Fargo Securities

 

 

  • Inflation has peaked, similar to past cycles.

 

 

  • Rental vacancies are grinding higher, …

 

 

  • In his speech last Tuesday, Chair Powell commented on the robust January jobs report, suggesting that the Fed has much more work ahead to get inflation under control.

It kind of shows you why we think this will be a process that takes a significant period of time.

The stock market saw the speech as sufficiently “benign” to send share prices higher.

  • Credit card debt continues to climb.

 

 

  • The Atlanta Fed’s GDPNow model forecast for Q1 growth is holding above 2% (annualized) boosted by expectations of robust spending on goods.

 

 

  • On a yearly basis, the trade gap hit a new record in 2022.

 

 

  • Home prices continued to decline in December.
    • Black Knight home price index (5% YoY):

 

Source: Black Knight

 

  • Inventories of construction materials are piling up. This chart shows the wholesale inventories-to-sales ratio.

 

 

  • Housing will be a drag on growth for some time, according to Goldman.

 

 

  • This chart shows forward earnings revisions on earnings days.

 

 

  • Continuing unemployment claims have been edging higher.
  • The Atlanta Fed’s wage growth tracker shows some moderation in pay increases.
  • The spread between wage growth of job switchers and job stayers has started to tighten, suggesting that labor demand has peaked
  • Job openings should ease going forward.
  • Payrolls growth will resume its slowing trend, according to Morgan Stanley.
  • The ISM Manufacturing PMI signals job losses ahead.
  • Next, we have tech layoffs as a percentage of each company’s workforce.

 

 

Market Data

 

  • Technicians see strong resistance at 4,200 for the S&P 500.

 

 

  • Goldman expects flat earnings and no price changes this year for the S&P 500.

 

 

  • Analysts’ 2023 S&P 500 earnings forecasts are down 11% from the peak. More downgrades ahead?

 

 

  • The Insider Selling Transaction Ratio signals bearish sentiment.

 

 

  • Historically, stocks have rallied around the peak of the Fed hiking cycle, but immediate gains have been short-lived if the economy enters a recession. This time, however, drawdowns have been more severe during the start of the hiking phase. (2 charts)

 

Source: Piper Sandler 

 

 

Quote of the Week

 

A businessman interviews a mathematician, an accountant, and an economist for a job. He asks them, “What is 2 + 2?” The mathematician answers, “Exactly 4.” The accountant replies, “Depending on what your interest, depreciation, and taxes are, approximately 2.”

The economist walks over to the door, shuts and locks it, closes the blinds on the window, and leans over and softly asks, “What do you want it to be?”

 

Picture of the Week

 

Fiordland National Park, New Zealand

 

 

 

All content is the opinion of Brian J. Decker