Stocks traded flat this morning amid a flurry of economic data as investors awaited a speech from Fed Chairman Jerome Powell. The Dow fell roughly 100 points, while the S&P and Nasdaq Composite remained mostly unchanged.
Economic data rolled in from ADP before the market opened, showing that fewer job listings (127,000) were added in October than expected (200,000).
“Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains,” said Nela Richardson, chief economist at payroll firm ADP.
“In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting, and the post-pandemic recovery is stabilizing.”
ADP pointed to a contracting labor force for the miss. The Labor Department reported a similar drop in openings but said that there are still significantly more job openings than available workers.
US labor remains tight, which did little to help bulls this morning.
The National Association of Retailers reported another drop in pending home sales for October, logging the fifth straight monthly decrease. This was opposed by the Bureau of Economic Analysis’ Q3 GDP upward revision.
“The data was somewhat mixed,” said Oanda analyst Edward Moya.
“But it does show there’s a lot of resilience in this economy. And it still is highlighting a labor market that is weakening but is still in relatively good shape. I think that we’re not going to get any answers on what will policy be like at the end of next year based on these reports.”
In reality, none of it matters. All the market really cares about is the federal funds rate and anything that influences it. That includes the jobs report (coming Friday), statements from Fed officials, and the rate hikes themselves.
The Fed is expected to raise rates by 50 basis points in December. The last four hikes were 75 basis points.
Investors will be looking for rate hike clues this afternoon when Powell speaks at the Brookings Institution.
“All eyes will be on Chairman Powell’s speech today, but we don’t believe he will break any new ground. He wants the stock market lower, and he’s willing to endure a recession in order to get inflation back under control,” explained Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
Ever since we predicted a rough start to 2023 in October, other analysts have hopped on board with that narrative. Morgan Stanley’s Mike Wilson says shrinking earnings and a stubborn Fed should whack stocks lower.
“You should expect an S&P between 3,000 and 3,300 sometime in probably the first four months of the year,” Wilson said.
“That’s when we think the deacceleration on the revisions on the earnings side will kind of reach its crescendo.”
He continued, adding:
“The bear market is not over. We’ve got significantly lower lows if our earnings forecast is correct,” and “most of the damage will happen in these bigger companies — not just tech, by the way. It could be consumer. It could be industrial.”
Wilson concluded:
“When those stocks had a tough time in October, the money went into these other areas. So, part of that rally has been driven just be repositioning from the money moving.”
Wilson is notorious for being one of the market’s biggest mainstream bears. And though he received lots of criticism for calling an end to the bull market in 2021, he was ultimately proven right over the course of this year.
We agree with Wilson (and actually pre-empted his 2023 bear continuation prediction by several weeks). The more this narrative picks up steam, the higher the chance that it actually happens. Money managers will flip increasingly bearish as sentiment on Wall Street sours, pushing stocks lower in the process.
Even if Powell’s remarks this afternoon provide an unexpectedly dovish surprise.
