US Jobs data helped boost the US stock market considerably higher on Friday. Can it be sustained?
US Jobs came in at 223,000. This was the lowest number for some time and was taken as good news by the market.
It was however much higher than the expected 200,000, and still above pre-Covid levels. In other words, the employment environment remains too high for the US Federal Reserve’s comfort.
Friday’s much-celebrated jobs number will not even dent the Fed’s trajectory of 50-point rate hikes for the foreseeable future.
Again, the market wants to think binary. Poor economic data is good news.
The ISM Services PMI moved into clear contraction. And this too, was somehow taken as defeating of Fed hikes and therefore also good for stocks? This was the first contraction since 2020 and means the majority of the US economy was already heading into recession in December.
This does not bode well for the 2023 economic outlook Especially when we know the Fed will continue to hike rates nonetheless.
While the market wants to believe and is pricing for the Fed to top out below 5%, my target zone remains 5.75% to 6.5%, with risk higher. The Fed’s dot plot has already just shifted from 5.1% to 5.4%. As expected, the Fed’s forecast is moving toward ours. Rather than the other way around.
The US stock market is not pricing the Fed’s and our even more hawkish rate outcomes. Therefore, the market is at risk and vulnerable to such eventualities.
While investors can perhaps be a little hopeful on the back of Friday’s trading, I would still suggest people be just a little cautious of the potential of a re-run from last year, Beginning just a little later in this second week.
The economy is in decline. Earnings are expected to decline. The Fed will still be hiking rates, and quite possibly higher than most anticipate.
Caution remains highly appropriate as we get serious about this new 2023.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
