Jobs data, Fed minutes, and a fresh start for investors: What to know this week

Jobs data, Fed minutes, and a fresh start for investors: What to know this week

The December jobs report and details from the Federal Reserve’s last policy meeting of 2022 will headline a short opening week of 2023 for investors as Wall Street limps into a new year after its worst run since the Global Financial Crisis.

U.S. stock and bond markets will be closed on Monday, January 2, in observance of New Year’s Day.

Economic data will pick up when traders return to a four-day trading week after a quiet end of December.

The Labor Department will publish its jobs report for December at 8:30 a.m. ET Friday morning, and economists expect a payroll gain of 200,000 jobs last month, per Bloomberg consensus estimates.

Outside of the headline jobs data, three additional updates on the labor market will be on the docket for investors this week, with the latest Job Openings and Labor Turnover Survey (or JOLTS report), ADP’s private payrolls data, and the Challenger Job Cuts report all due out.

Alongside the flurry of labor market releases, the Fed will release a readout of its December policy meeting, which investors will pore over for clues on the central bank's next move. Last month, the Fed raised interest rates by 50 basis points, bringing total increases to its benchmark policy rate to 4.25% in 2022.

Global and U.S. stocks closed out their worst year since 2008 on Friday. Aggressive central bank actions to quell historic inflation and war in Ukraine battered financial markets and ended a three-year winning streak for the major averages.

The S&P 500 tumbled 19.4% in 2022, its largest calendar-year decline since a 38% drop in 2008 during the Great Recession. The Dow fell a comparably modest 9%, holding up better than its index peers.

The Nasdaq Composite wiped out one third of its value, dropping 33% and closing out its first four-quarter decline since the 2000 dot-com bubble as rising interest rates wreaked havoc on technology stocks.

Even as investors turn the page on 2022, much of Wall Street expects more pain remains ahead.

Consensus strategist forecasts see a volatile first half of 2023 and an easier second half. Still, stocks are expected to be little changed — or post marginal gains at best — with the Federal Reserve projected to keep rates high for a sustained period of time.

"Amid the backdrop of the hawkish Fed’s aggressive rate-rising moves leading into 2023, there is an exceedingly greater investor concern about the likelihood of a harder-than-desired landing that would push the U.S. and global economies into a recession," AXS Investments CEO Greg Bassuk said in an emailed note.

"Investors remain hyper-focused on employment, labor and related economic data, as the ongoing strength of wages could hamper corporate profit margins and cripple earnings across industries and sectors."

The labor market has cooled in recent months though demand for workers remains high, even as Fed officials has pressed on with their most combative monetary-tightening campaign in decades.

Despite policymakers delivering 425 basis points worth of rate hikes in 2022, the U.S. labor market has averted any substantial hit, while other facets of the economy such as housing and manufacturing have shown signs of a slowdown.

While Wall Street’s consensus estimate for nonfarm payroll growth last month stands at 200,000, this would market a slowdown from the 263,000 jobs added to the economy in November when predictions were roughly the same. The unemployment rate also stands at a low of 3.7%, while the labor force participation rate remains little changed.

“The lag effect of Fed tightening throughout 2022 will slow economic activity in 2023, a natural outcome of fighting inflation,” Treasury Partners chief investment officer Richard Saperstein said in a note, though adding: “The labor market will be the last to turn, forcing the Fed to maintain elevated rates through 2023.”

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Minutes from the FOMC's December meeting are likely to show the thinking behind the central bank’s “slower but higher” regime. Fed Chair Powell has signaled that he and colleagues will switch to smaller rate hikes to assess their toll but may ultimately lift the terminal rate higher.

December’s median forecast showed a new interest rate peak of 5%-5.25%, up from 4.5%-4.75% in September. The Fed’s 0.50% hike, meanwhile, marked a downshift from a steady round of 0.75% hikes.

The FOMC is set to convene January 31-February 1 and is expected to deliver its first rate increase of 2023 and eighth of the current hiking cycle at the conclusion of discussions.

Elsewhere on the economic calendar this week, readings on durable goods orders and PMI data will offer investors the latest snapshots of industrial and manufacturing activity.

The earnings calendar remains light during the off-season, with a few notable names including Conagra (CAG), Constellation Brands (STZ), and Walgreens Boots Alliance (WBA) set to report.

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