Old Mr. Groundhog was a HUGE disappointment on Thursday as six more weeks of cold, damp winter are expected. BOO! The week did provide a few good surprises, however, including a resurgence in the downtrodden technology arena. Several companies from Meta to Amazon reported upside earnings surprises during their fourth quarter 2022 releases. Others, however, like Alphabet (Google) and Apple were not so fortunate and reported lower earnings versus expectations. We continue to see job layoffs from all the above-mentioned companies, and others, as they quickly work to position for a lower revenue world in the months ahead. Forward guidance will remain a key factor to watch as companies look for ways to maneuver through the turbulence. While the upside earnings surprises are welcome, it’s the forward guidance that has more impact on near-term stock performance. For most of these companies, especially in the tech sector, layoffs and cost cutting measures will likely remain on the table for the foreseeable future. The markets closed higher to end the month with the S&P 500 having its best January in the last four years. It would be normal to see some easing in the near-term as earnings season rolls on and the great “resetting” of our economic and corporate world continues.
The Federal Reserve’s decision to raise interest rates by another quarter of a point (.25%) was widely expected. During Chairman Powell’s post meeting press conference, he reiterated that the previous work the committee had done and put in place, is showing signs of bringing down inflation. He used the statement, “the disinflationary process has started” in his comments, which was well received. Numerous data points released over the last few months have been showing signs of this. For now, it seems the committee is intent on increasing rates by another quarter point in February before taking a true pause. Economists have been predicting this would be the case, so hearing the Chairman discuss this directly gave an overall boost to our markets. While there remains work to be done and data points to watch, the moves put into place thus far are having an effect.
A new wrinkle to this mindset, however, was the January jobs data released this morning. Nonfarm payrolls increased by 517,000 far higher than the estimates of 187,000. The unemployment rate fell to 3.4% versus the estimate of 3.6%. This is the lowest jobless level since May 1969! Wages also posted solid gains, increasing 0.3% for the month, and are now 4.4% higher than a year ago. This could provide some reasoning as to why consumer spending, while slowing, remains strong.
What we are watching now are the recessionary concerns that remain a dark, overhanging cloud. As the Federal Reserve continues to do their thing, economists are growing more concerned about a recession later this year. I don’t know exactly how this will all play out, but it does seem more than reasonable that we will enter a period of measured declines in growth. I still believe, however, that any recession we do see will be shallower in nature and not nearly as prolonged. As evidenced by the market activity to start the year, there is money to be put to work. The parts of the market that ended 2022 in an oversold manner, have been recovering to some degree. While the Fed has indicated its willingness to pause, these latest unemployment and labor readings might force them to pivot again and increase rates again slightly in March. All we can do is wait and see for now. It’s all in that other mythical creature’s hands now, good old Father Time!
Have a nice weekend!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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