Stocks kicked off the new year on a positive note, with the S&P 500 climbing 1.4% last week. The index is now up 8.9% from its October 12 closing low of 3,577.03 and down 18.8% from its January 3, 2022 closing high of 4,796.56.
Byron Wien, the legendary former chief investment strategist at Morgan Stanley and current vice chairman at Blackstone, warned on Wednesday that financial markets could slide during the first half of the year before rallying again.
“Despite Fed tightening, the market reaches a bottom by mid-year and begins a recovery comparable to 2009,“ Wien wrote.
“Wall Street is bearish,” Savita Subramanian, head of U.S. equity strategy at BofA, wrote on Wednesday. “This is bullish.“
Subramanian was referring to the contrarian signal from BofA’s proprietary “Sell Side Indicator,” which tracks average recommended allocation to stocks by U.S. sell-side strategists. While it doesn’t currently reflect “extreme bearishness,” it’s at a level that “suggests an expected price return of +16% over the next 12 months (~4400 for the S&P 500).”
And longer term investors should remember the odds of generating a positive return improves for those who can put in the time.
Reviewing the macro crosscurrents 🔀
There were a few notable data points from last week to consider:
🚨 Job growth. According to BLS data released Friday, U.S. employers added 223,000 jobs in December, stronger than the 203,000 gain economists expected. Over the course of 2022, employers added a whopping 4.5 million jobs.
📉Unemployment rate tumbles. The unemployment rate fell to 3.5% (or 3.468% unrounded) from 3.6% in the prior month. This is the lowest rate since 1969.
💰 Wage growth cools. Average hourly earnings in December increased by 0.3% month-over-month, cooler than the 0.4% rate expected. On a year-over-year basis, average hourly earnings were up 4.6%, which was lower than the 5.0% expected. For more on why this matters, read: “A key chart to watch as the Fed tightens monetary policy 📊“
📈 Job switchers get better pay. According to ADP, which tracks private payrolls and employs a different methodology than the BLS, annual pay growth in December for people who changed jobs was up 15.2% from a year ago. For those who stayed at their job, pay growth was 7.3%.
👍 There are lots of job openings. According to BLS data released Wednesday, U.S. employers had 10.46 million job openings listed in November, down modestly from 10.51 million openings in October. While openings are below the record high of 11.85 million in March, they remain well above pre-pandemic levels.
During the period, there were 6.01 million people unemployed. That means there were 1.74 job openings per unemployed person in November. This is down from 1.99 in March, but it still suggests there are lots of opportunities out there for job seekers.
👍 Layoff activity is low. The layoff rate (i.e., layoffs as a percentage of total employment) stood at 0.9% in November, unchanged from its October level. It was the 21st straight month the rate was below its pre-pandemic lows.
💼 Unemployment claims remain low.Initial claims for unemployment benefits fell to a three-month low of 204,000 during the week ending Dec. 31, down from 223,000 the week prior. While the number is up from its six-decade low of 166,000 in March, it remains near levels seen during periods of economic…
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