We get an inordinate amount of data this week, with jobs data front and center.
On Wednesday we see ISM data, the Job Openings and Labor Turnover Survey (JOLTS) report and the Fed minutes. Regarding the latter, remember that the Fed minutes are prepared after the policy meeting and are a tool in their own right, rather than just being "minutes of the meeting." Last January's minutes set the tone for the "valuation re-valuation" that we experienced last year.
On Thursday we get ADP's take on jobs (the market is still trying to figure out the new methodology ADP launched this summer, so it is less impactful than it might otherwise be) and Global PMI comes out.
Then on Friday we get Non-Farm Payrolls, ISM, Factory Orders and Durable Goods.
By the end of this week we will have a much better read on the state of mind of the Fed. It wants to be hawkish, but it might be getting nervous about pushing too far because the last two Consumer Price Index (CPI) reports on annualized basis were under 4% and 3%, respectively, and are trending lower.
The jobs data continue to befuddle many (or at least me). What I think we are seeing is strong demand for entry-level workers and for workers who interact with customers, while demand for middle manager types has fallen off a cliff. Unfortunately for the economy, those middle manager types fuel spending.
For now, I'm still in the mode that we could get a Saint Nicholas rally into Ukrainian Christmas (Jan. 7) because we failed to get any sort of meaningful Santa Claus rally into Dec. 25 or year-end. That's probably a bit optimistic, but I think we have one last shot at a "slowing economy is good for stocks" rally before we switch to full-on "bad news is bad" and get a true risk-off trade (producing lower yields and much lower stock prices).
I do not like what I'm seeing in Big Tech as tech stocks seem to be unable to hold any bid and most still have extremely large market capitalizations by any metric.
On Tuesday, the year started with what looked an awful lot like a recession trade, with lower stocks (including commodities) and lower bond yields. That makes me nervous that we will get another bounce, though I'm still leaning that way as positioning seems to be extremely bearish.
I continue to watch ProShares UltraPro QQQ (TQQQ) get inflows while the ARK Innovation ETF ARKK gets outflows. They often see inflows and outflows together and that has changed. It's almost as though people have given up on disruptive (a sign of a true bottom) but haven't given up on the "safety" of mega-caps. Again, if my scenario of a big risk-off trade is correct, that is the next to go.
At this point I like what I wrote in my 2023 picks. Stick with those. Don't be too bearish just yet, but get ready for that and we will adapt as the data come through, which I expect to point to a weaker-than-expected and deteriorating economy that will drag earnings and valuations down.
The process of managing our wealth and risk in 2023 has begun.
