• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

The Market's Biggest Worry Now Is Labor-Related Inflation

J.P. Morgan is forecasting a market trough in the first half of 2023.
By JAMES "REV SHARK" DEPORRE
Jan 06, 2023 | 07:00 AM EST

A month ago, the primary focus of market players was "peak inflation." The hope was that when the Consumer Price Index (CPI) peaked and started to trend down, the Fed would start to pivot and that would bring an end to the bear market.

That sounds logical, but we are grappling with a far more complex economic situation, and it is going to go through phases and will evolve over time before this nasty bear market comes to an end.

While CPI and many inflation concerns have eased and are falling, there is still tremendous concern about labor-related inflation. There is still strong demand for employees and that is causing wage inflation to stay elevated. Fed Chairman Jerome Powell has made it clear that this is the Fed's major concern right now.

Jobs data on Thursday came in hotter than expected, which caused the odds of a rate hike of 50 basis points at the next Fed meeting to rise to 57%, but stocks managed to hold on to key support levels.

Here on Friday morning nonfarm payrolls will be announced at 8.30 am ET. While there has been moderation in hiring and estimates are for a decline in job growth to 202,000 jobs in December, down from 263,000 in November, there is a whisper number of 244,000 after the strong ADP report on Thursday.

This report will be a market mover primarily because it will impact what the Fed does at its next meeting on Feb. 1. Fed members keep making comments that they are not going to back off on their fight against inflation prematurely.

The battle against inflation is going through phases, but so is the entire bear market cycle. Once the Fed believes it has inflation under control, then the market will need to deal with the economy slowing and the recession that the hawkish Fed policies will create.

This morning J.P. Morgan ade this comment: "We believe the market is approaching a bifurcation, at which point stocks risk seeing a more accelerated leg of the bear market that is associated with falling earnings expectations and break in correlation from interest rates. We ultimately expect a 1H23 bear market bottom. The realized inflation trajectory into early 2023 and the nature in which the forward rate curve reshapes to it will likely dictate the timing and level of the low. At the positive end of the risk spectrum... rapidly falling inflation data leads to further expectations of eases in the second half of the year and helps the S&P 500 bottom near the 3491 Oct trough."

This seems to reflect a building consensus that the market may hit a trough in the first half of 2023 as stocks are hit by the realization of slowing growth and a recession. The view is that this has not yet been anticipated or discounted to a great degree.

Before we confront the issue of slowing growth, we need to deal with inflation first, and the jobs news today will provide clues as to whether labor-related inflation is slowing.

Technical conditions are precarious, and the risk is to the downside.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Economic Data | Economy | Federal Reserve | Interest Rates | Investing | Stocks | Real Money

More from Stocks

As Fed Hour Approaches, Bulls Are Believers, Bears Are ... Incredulous

James "Rev Shark" DePorre
Feb 1, 2023 11:58 AM EST

One side has hope the Fed can tame inflation and set up a soft economic landing while the other thinks that expectation is ridiculous. Soon, we'll have some clues about what could play out.

McDonald's Solid Quarter Hijacked by Trouble on the Horizon

Jonathan Heller
Feb 1, 2023 11:30 AM EST

When the largest restaurant chain -- and 'Big Five' name -- talks you take notice.

What Do C.H. Robinson's Charts Say About the Economy?

Bruce Kamich
Feb 1, 2023 10:48 AM EST

The freight transportation firm reports Q4 earnings after Wednesday's market close.

I Like AMD and Lisa Su Even If the Stock May Need a Trim

Stephen Guilfoyle
Feb 1, 2023 10:45 AM EST

Do not confuse prudent risk management with my not continuing to like this name.

Look for More Upside in These 2 Stocks, Even Against a Challenging Backdrop

Bret Jensen
Feb 1, 2023 10:30 AM EST

Both names should see growth in 2023 and they're reasonably valued.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:27 PM EST REAL MONEY

    LIVE EVENT: Chris Versace and "Sarge" Guilfoyle Share Their Stock Market Insights

    This Monday, Jan. 30, at 12 p.m., our very own exp...
  • 11:48 AM EST REAL MONEY

    Watch Doug Kass on the Daily Rundown!

    In today's Action Alerts PLUS Daily Rundown, Doug ...
  • 11:03 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend On Real Money

    It's time to start using this power to build great...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login