The Week in Review: January 9, 2023
Stocks Rally on Hopes Inflation Will Slow
The U.S. Bureau of Labor Statistics reported another respectable employment number on Friday, illustrating that modest economic growth and a still-high number of job openings are boosting payrolls.
But it was a smaller-than-forecast rise in wages that caught the attention of investors, and stocks rallied.
First, nonfarm payrolls grew by 223,000 in December, and the unemployment rate fell to 3.5% in December from 3.6% in November. The jobless rate hasn’t strayed above the narrow range of 3.5% to 3.7% since March.
Payroll growth is moderating but remains solid. That’s not surprising given the high number of job openings, which makes finding a job easier.
As the chief economist for ADP pointed out last week, “The labor market is strong but fragmented, with hiring varying sharply by industry and business size. Business segments that hired aggressively in the first half of 2022 have slowed hiring and, in some cases, cut jobs in the last month of the year.”
So, some folks are doing well. Others, however, aren’t as sanguine.
Let’s turn to the wage component, which sparked the big rally on Friday.
Average hourly earnings rose by less than 0.3% in December, and there were significant downward revisions in October and November.
Here’s where things get tricky. Investors view economic data through a very narrow lens. They celebrated the slowdown in wage growth because smaller wage hikes put less upward pressure on inflation and could eventually reduce the need for Fed rate hikes.
Investors are rooting for a continued slowdown in wage growth and a loosening in the tight labor market but not an outright recession, which would hamper corporate profits.
Wages are still rising too quickly for the Fed’s comfort and aren’t compatible with its 2% annual inflation goal.
Workers, however, benefit from higher wages, as many have not kept pace with the spike in prices.
Bottom line
It’s just one report. Just as November’s wage data was too hot for investors, the downward revisions in December may or may not hold.
Still, shorter-term investors liked what they saw. Progress for investors occurs in inches, not yards, and stocks finished the week on an up note.
If you have any questions or concerns, please do not hesitate to contact me directly.
Two for the Road
Going back to the early 1970s, Fed hiking cycles lasted an average of 219 days (from the first hike to the first cut); we’re currently just beyond 260. - Liz Ann Sonders, December 9, 2022
United Airlines CEO Scott Kirby said, “If I didn’t watch CNBC in the morning…the word ‘recession’ wouldn’t be in my vocabulary.” He made that statement while being interviewed on CNBC. - Morning Brew, December 7, 2022
This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.