Weekly Market Update: December 12, 2022
The nation added an estimated 263,000 jobs in November. The better-than-expected tally brought the estimated total jobs created over the first 11 months of 2022 to just over 4.3 million. The unemployment rate was unchanged at 3.7%. Both figures suggest the labor market remains tight.
Wall Street paid close attention to the average hourly wage figure for signs of inflation. The Labor Department report showed that the average hourly earnings for all employees on private nonfarm payrolls rose 18 cents (+0.6%), to $32.82, twice the consensus forecast. Over the past 12 months, average hourly earnings increased by 5.1%. The spike in wages brought renewed concerns that inflation remains stubbornly high.
Also on the economic activity front, the nonmanufacturing sector advanced at a faster-than-expected pace in November. According to the Institute for Supply Management (ISM), a trade group, its index of services activity increased to 56.5 last month from 54.4 in October, boosted by a surge in business activity to an 11-month high. The recent flow of positive economic data increased sentiment that the Federal Reserve will continue hiking interest rates and ultimately lift the federal funds rate to a higher level for a longer duration. The value of the dollar rose against a basket of foreign currencies on the reports, which prompted some early December selling in the equity market.
Nevertheless, the inflation outlook remains fluid. Shortly after we went to press, data on November consumer and producer prices were scheduled to be released. Those two reports were expected to be monitored by the central bank before its final two-day Federal Open Market Committee (FOMC) meeting of 2022, slated to commence on December 13th. This year, the Fed has paid close attention to the Consumer Price Index for signs of inflation, maybe more so than the Personal Consumption Expenditures (PCE) Price Index, which did show some cooling in prices during October.
Conclusion: Despite the pullback in equities to start December, seasonal patterns suggest that the recent broader rally may resume as we move toward year end. Historically, stocks rally this month, as liquidity thins and institutional investors seeking to close their books before the Christmas holiday make end-of-the-year adjustments, prompting what has come to be known as the “Santa Claus” rally.