Key Data Releases with Friday's Payroll Report

Quincy Krosby (00:00):

Hello from LPL Financial. Welcome to the Talking Point. I'm your host, Quincy Krosby. Good morning everyone. It's Quincy Krosby. It is January 2nd, 2024. Thank you so much for joining me on this talking point this morning. Tuesday morning, not Monday morning, but Tuesday morning, January 2nd, we see that the market is in the red. Not dramatically so, but I want to point out that the market began to slow down. Finally, take a pause. Last week in the last trading session, nothing abnormal. Markets need to pause. They need to consolidate, they need to digest the gains. And my goodness, the gains have been dramatic. There's been a call based on every metric that the market follows, that the market was overbought and it needed to slow down. But with a very strong market, with a strong underpinning, markets don't necessarily obey and say, okay, now we will slow down.

Quincy Krosby (01:04):

Same thing with oversold markets. Sometimes we'll say a market is oversold, it's due for a positive turn and the over the selling continues. But overall, we do see this market slowing down. Not dramatically so, but enough to say we're taking a bit of a pause. And most likely what we'll see is that this pause will continue for a bit. This week there are a number of catalysts for the market to move up or the market to move back down a bit more. Nonetheless, the market is starting the new year with a bit of a consolidation. Now keep this in mind. Santa Claus did visit, oh yes, Santa Claus did visit last week. Remember the Santa Claus rally statistically is the last trading week in the year and the first two trading days in the new year, which would be today and tomorrow. But the market received the gains that you see statistically for the Santa Claus rally.

Quincy Krosby (02:07):

The next big market mover, by the way, is called the January effect, as money comes in to the market and is positioned. Now, this typically follows the harvesting, the tax harvesting that we have in December, which involves selling. So we'll keep our eye on that. But overall, this market has been miraculous by every measure. You know who the winner was? Who I say who it was the semiconductors, just taking a look at one that would be the Philadelphia Semiconductor Index. It was up in 2023 by 64.9%. The semiconductors have become over the last couple of years a major indication of global demand. That's how we look at it, because again, the chips are in everything. So I just wanted to point that out and we'll keep our eye on the leadership in this market, which by the way has been positive, has been a growth oriented because what we've seen is discretionary leading and we have also seen tech strong.

Quincy Krosby (03:17):

These are indicators that the market sees a positive direction as opposed to if we moved over to the consumer staples, right, or we moved into utilities on the other side of the equation. So we'll keep our eye on it because we'll see if there are any shifts at all. We will see it pick up in the direction of the sectors leading the market in one direction or another. Now, in terms of this week, it's an extremely busy week, despite that it's a shortened week. First of all, today we're going, that is Tuesday, January 2nd, we will see the construction spending and expectations are that it will stay the same. It won't go up, it'll won't go down. It'll be just under 1%. This is important. We want to see the direction of construction spending as it is a crucial part of the overall economy.

Quincy Krosby (04:11):

Tomorrow Wednesday, January 3rd, we're going to get the Fed Minutes. And as I've said over and over in this call, you know, given how much speaking we have when the Fed is finished with a meeting, we know what the Fed is thinking. We see it from and hear it from the Fedspeakers. Nonetheless, the market always looks for any tidbit that perhaps has not been captured in the commentary or in the market itself. So we're going to pay attention to that. Also, we're going to hear from Richmond Fed President Barkin. I'm mentioning this because we don't see that many speakers this week, but he tends to be fairly pragmatic and we'll see what he has to say about the market's perception of the number of rate cuts for this year. We're also going to have obviously the U.S. job openings, because this is payroll week.

Quincy Krosby (05:07):

So the U.S. Job openings has been important because the way the market looks at that, is that the Fed? Yes, everything by the way is translated into how the Fed sees everything, correct? Until the Fed is finally finished with rate drama. But market is expecting to see a little bit more openings going from 8.7 million openings to 8.8 million openings. And the reason we pay so close attention to this is that you want to see the number of openings pull back. The more openings available, the more it allows folks who are saying, I want to jump, I want to earn more money because you tend to earn more money when you take on a new job. It gives those in position with looking at the possibility to jump and earn some more money. So the fewer job openings, if we were to see that, which suggests that people will stay in the jobs they have and just accept the fact that the opportunities have diminished a bit.

Quincy Krosby (06:11):

But right now, according to consensus estimates, is that we will see a bigger move in the number of job openings. Here's an asterisk for this. Many people look at the job openings report and say it is not reflective of the reality that the surveys are not that good, are not that realistic, but we're still reporting it as it is. We'll also have the ISM manufacturing tomorrow. This is important. Granted, manufacturing is a smaller portion of our economy with the consumer sector about 70% or 68 to 70% of our economy. Yet, it is extremely important nonetheless. Manufacturing has been down. Part of it was due to the United Auto Workers. We're seeing perhaps a little bit of a pickup in manufacturing as the orders start to come in. However, it is below 50%. Remember in the ISM manufacturing reports, 50 is the line of demarcation. The line between growth, expansion and pulling back. Not a sell off, but a slow down, a contraction.

Quincy Krosby (07:25):

Expectations are however that we may see the beginning of a bottoming, meaning it's still below 50, but we are above where it was the month before. So we're looking for perhaps around 47% that would be above where it was in November. And that could suggest that we are beginning the process of bottoming in the manufacturing sector. But also we are going to see, as I mentioned, the Fed minutes coming out at two o'clock tomorrow. Market looking for any kernel of information that was not captured already by the market. And we'll have auto sales, which by the way have been picking up. And then on Thursday we'll have the ADP employment report. I want to mention that does not have a positive correlation necessarily with what we get on Friday, yet the market responds to it because it is about the private sector. Expectations are that we could see just over a hundred thousand new jobs.

Quincy Krosby (08:31):

But nonetheless, this has been one that, you know, tends to surprise to the upside and the downside. Claims, by the way, have actually been fairly contained, initial unemployment claims. Expectations are, we shouldn't see a major movement in one direction or another, especially given the holiday hours on Friday. We're going to get the ISM Institute for Supply Management Services. Remember, that is the majority of our economy. Expectations are that it will remain above 50, but it could pull back just a tad, but we'll be paying attention. And keep in mind, both for manufacturing and the services, what we focus on following new job orders, we're looking at expectations for hiring and also we're looking at the prices paid components in both of these reports. Very important as we focus on inflation and inflationary expectations, we'll also have factory orders. And of course we know that that is considered important.

Quincy Krosby (09:39):

Expectations are by the way, that we will be in positive territory from the downturn that we saw in the month of November. And overall, this week will end on Friday with the employment report, and this is extremely important because remember, the Federal Reserve is dual mandate. The first mandate that we have been focused on nonstop fits from the time that we started talking about the supply chain. Remember that an inflation climbing higher and the Feds saying, no, no, no, it's only temporary. The Fed's other mandate is to create an environment of sustainable economic growth. That's a very important mandate for them. And that happens to be the essence for the labor market; sustainable economic growth backdrop so that the labor market can flourish. So that's why the employment report is incredibly important. Expectations are right now that we will see about 170,000 new jobs that is down from the surprise we had in November, which was 199,000 new jobs.

Quincy Krosby (10:47):

We'll also be looking for revisions, but within this report we are going to look at hourly wages, which is important because there are those who say, hey, you know, we see that inflation is coming down. But you know, we've seen so many strikes with workers, 2023 was a year for the worker and they have all walked away with stronger wages. Is that going to show up in hourly wages climbing higher? And by the way, when you see that, then you start thinking, well, this is going to force companies to raise their prices, which of course is inflationary. So this is why we're paying very close attention to this. All in all it's going to be an extremely important market. Right now we see volume in the market is still slow. Folks are still off today. But coming into the end of the week, we should see the volume pick up indicating that global markets are back.

Quincy Krosby (11:46):

You know, in Europe, in Latin America, Canada, and here in the U.S. even though the official holidays are over, people tend to take off during this period and the volume in the market tends to ease and then start to gain again as folks come back in and work in the market as a reflection of the headlines. Last but not least, in this call, I do want to mention the standoff in the Middle East. Remember, what has allowed this market to actually do so well has been the fact that the Israeli-Hamas war has remained contained. However, one of the major surrogates for Iran, which by the way is called the Houthis, they're from Yemen. And the Iranians have a number of other surrogates, which actually one is Hamas, the other is Hezbollah. But the U.S. has a ship in the Red Sea. Iran has now sent their ship into the Red Sea.

Quincy Krosby (12:44):

Remember that this has been an area that we are watching. The U.S. has attacked a couple of the Houthi small ships. A couple of the crew have been killed. And why did the U.S. do it? Because the Houthis have been attacking U.S. presence in the region. And so Iran has sent in one of their ships. This is important so far as I look at the market, all prices have inched higher. We are focused on all prices because if this escalates, all prices will surge higher. It won't be edging higher, it won't be inching higher. And so far it has remained contained. You will also see all prices besides all prices, gold prices would rise as well. And I also want to say, you'll see money coming into the U.S. Treasury market. That in and of itself will pull the yields down. Not up, but down. But we'll keep our eye on it. Again, I want to repeat so far it remains contained, but we have to be observing it and watching it and certainly the all market is watching it second by second. Have a very good week. Thank you so much. We'll be back next week on Monday. Happy New Year everyone.

Speaker 2 (13:55):

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Speaker 2 (14:54):

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