Welcome to a new year of financial markets. But as the days change, sales continue to disappoint.
The S&P 500 Index has found a level with the middle of the 3,800 level. Next week, we could see a small break above 3,920, but it may not last. That’s because Wall Street experts are as confused as most of us. The data for 2023 is on the site and some guides are predicting an up year while others believe that the decline of last year will continue.
The confusion is caused by many unknown factors including the path of inflation, interest rates, and the general economy. Currently, markets are focused on the labor market, especially jobs and wage growth. It is understandable that the Fed is focusing on this area as a ‘tell’ whether their monetary policy is working.
However, both wage and employment data seem to be unaffected by the high interest rates and the Fed’s attempt to slow the economy. That may change soon since we are seeing more and more companies announcing layoffs and other cost-cutting measures. Goldman Sachs, Salesforce, and Amazon, for example, announced restrictions this week.
This week’s non-farm payrolls report shows uncertainty. The number of jobs gained in December exceeded expectations (223.000 jobs compared to 200,000 expected) but the average increase in hourly wages fell slightly (from 0.3 percent compared to 0.4 percent expected). The headline unemployment rate, which politicians often focus on, fell from 3.7 percent to 3.5 percent.
This is the second month in a row that wages have fallen while jobs have been gained. This is the world’s best for the Fed’s war and inflation. If employment continues to grow, but wages, a large part of future inflation, continue to fall, it may give traders hope that the Fed may not need to push too hard. this year.
Economic data continues to give mixed signals on economic growth. Some sectors seem to be slowing down, while others continue to grow at a reasonable pace. Many economists believe that we will enter a recession in the first half of the year but how deep and long it will be subject to endless debate.
Other experts I follow believe that we will see a series of positive developments in various sectors as the year progresses as opposed to the usual decline in sectors within the economy. If so, any decline will appear moderate as some areas continue to improve and others sink.
On the economy, the data seems to show a decrease in prices, but how much and how fast is not known. While everyone has an idea, no one knows for sure. In fact, both investors and the Fed are in a wait-and-see environment as to how monetary policy will affect the economy in 2023. All these conflicting statements have created what is known as the ‘chop city’ in the stock market where markets gain and lose from information to information sometimes in one day or hour.
Speaking of the market, another area that will definitely affect the prices of products is the company’s fourth quarter earnings, which is coming up (Jan. 13). Most analysts believe that the estimated earnings, and future guidance will be disappointing. If so, it will encourage more sales.
In the past, I wrote that until the ‘General’ began to fall, stocks would take a long time before this decline ended. . The good news is starting to happen. The bad news is that five to six of these stocks are hurting investors’ records and the market with them. The FANG stocks, which represented 24 percent of the large index, saw a significant decline but still represented 19 percent of the total market.
Names like Tesla, Apple, Google, Microsoft, and Amazon are seeing constant selling, followed by a short run which tells me a lot of liquidation from retailers and investment institutions. For markets to end up below these stocks must capture or exceed the losses supported by many other growth stocks.
As readers know, my prediction last month was that the S&P 500 index would trade between 3,700-3,800 in December and January. That has come true. The AAII Sentiment Survey is among the 60 lowest in the survey’s history. Bearish sentiment continues to build, which is not surprising as many financial players are pessimistic about the markets. But, as an opposite sign, it seems to indicate that we need to reproduce quickly.
I can see the market rallying in the middle of next week if the dollar remains weak, and interest rates remain unchanged. At that time, the Consumer Price Index for December, to be released on Thursday, will be the center, followed by bank earnings on Friday. Those events can make the market higher or lower again.
In the long term, I believe we will see the lows in February through March 2023 that could take the S&P 500 Index down to 3,200 or lower. The disappointment of the company’s earnings, the Fed is not threatened by improving the price of the price, higher interest rates, and the strength of the dollar will be the motivation for this. That’s the bad news.
Sometime in March, however, I think the markets will crash. We could see a large collection in the spring, and maybe even in the summer. I’ll be updating that information as we go along so stay tuned.
