'Temperature' Matters for a Nervous and Pessimistic Market
Here are the key issues and questions confronting Wall Street as it digests the latest jobs numbers Friday and awaits fourth-quarter earnings season.
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Following an inflation scare earlier this week, market participants are nervous about the December employment report, which will be released Friday morning at 8.30 a.m. ET. The report is expected to show a slight slowdown, with 165,000 new jobs and a steady unemployment rate of 4.2%. Hourly earnings growth will be particularly important after a spike in prices paid for services was reported on Tuesday.
The key issue Friday morning is whether a strong jobs report is good news because it suggests that the economy is staying strong or bad news because it is inflationary. Goldman Sachs is forecasting that the market will sell off by more than 0.5% if the jobs number is more than 175,000 but will rally if it is under 150,000, but not too weak.
In other words, very strong numbers and extremely weak numbers will be bad news, but a report that is "not too hot and not too cold" will reassure the market that Goldilocks' economic conditions still exist.
While the jobs report will be important, the bigger issue the market is struggling with is the uncertainty of the Trump Administration, which will come in with a bang on Monday, January 20. There will be a slew of action on the first day, and there is still very little clarity about tariffs, the budget deficit, and many other economic matters.
To further complicate matters is that we have a two-tier market with extreme concentration in a small group of mega-caps while the average stock is struggling. Around 57% of stocks are flirting with bear market territory below their 200-day simple moving average.
Fourth-quarter earnings report starts next week with the major banks, so there will be plenty of news flow to produce increased volatility. The main question will be whether there is a "sell the news" inclination as earnings reports start to hit.
The market is nervous and pessimistic, which may help produce some bounce action if the jobs report is slightly weaker than expected and reduces some of the fears about inflation. Inflationary pressures and higher interest rates have been ignored for months, but now they matter, and the news about jobs is going to have an impact on the market mood.
There is some weakness in the early going as we await news.
At the time of publictaion, Rev Shark had no positions in any securities mentioned.
