Stock Market Rallies into New Year – Monday Morning Market Memo – January 9, 2022

Stock Market Rallies into New Year – Monday Morning Market Memo – January 9, 2022

After a dismal 2022 for the stock market, characterized by a bear market (a drop of 20% or more), stock prices rallied during the first trading week of 2023.  The Dow Jones Industrial Average rose over 700 points (2.1%) on Friday, after the U.S. Department of Labor released the December Jobs Report.  The economy added 223,000 jobs last month (versus expectations for a gain of 200,000), while the unemployment rate improved a notch, falling to 3.5 percent.

Ironically, the part of the report which sent the market higher, was wage growth coming in less-than-expected and lower than a month earlier.  Lower wage growth indicates less inflationary pressure, suggesting the Federal Reserve may become less restrictive with monetary policy – triggering the market rally.  Also supporting the market – the ISM Non-manufacturing Purchasing Mangers’ Index showed contraction in the services industry last month – and a slowing economy can also indicate less inflation, and less pressure on the Fed to keep hiking rates.  Bottom line – these data points created optimism inflation would ease, translating into optimism the Fed would ease up – which even resulted in some hope the U.S. economy may be able to avoid a recession!

For last week as a whole – the Dow rose 1.5% to 33,630 – the Standard & Poor’s 500 Index added 1.4% to 3,895 (snapping a 4-week losing streak) – while the NASDAQ Composite gained 1% to 10,569.  Looking to the week ahead, we’ll get a highly important read on inflation when the December Consumer Price Index (inflation) report is released on Thursday.  Expectations are that year-over-year inflation will decline from 7.1% to 6.5%.  Additionally, this week marks the beginning of another earnings season.

Earnings reports this week will be highlighted by major banks including JPMorgan ChaseBank of AmericaCitigroup, and Wells Fargo.  Looking at aggregate expectations: For the fourth quarter of 2022, the estimated earnings decline for the S&P 500 is -4.1%, which would mark the first time the index has reported a year-over-year earnings decline since 2020, according to data from FactSet.

All the best – Southport Station Financial Management, LLC