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Profit from the Pros By Kevin Matras Executive Vice President
Stocks End Higher Yesterday, All Eyes On This Morning's Employment Report
Stocks closed higher yesterday with the Nasdaq leading the way.
With one more trading day left, the Dow is modestly lower for the week, the S&P is barely lower, and the Nasdaq is a tad higher.
Yesterday's Wholesale Inventories report was down -0.4% m/m vs. last month's downwardly revised 0.0% (from 0.2%) and views for -0.2%.
Consumer Credit was up $5.2 billion m/m vs. last month's upwardly revised $12.2B (from $9.0B) and the consensus for $9.0B. That equates to a 1.2% annual credit growth rate vs. last month's 3%.
Weekly Jobless Claims rose by 1,000 last week to 220,000, but less than the expected 222,000.
The Challenger-Job Cut Report rose to 44,510 announced layoffs vs. last month's 36,836 announced layoffs.
But the jobs report everybody is waiting for is this morning's Employment Situation report. The consensus is calling for 180,000 jobs being created in November (150K in the private sector and 30K in the public), while the unemployment rate stays the same at 3.9%, and average hourly earnings rise by 0.3% m/m, and 4.0% y/y (down from last month's 4.1% pace).
This is the last big piece of Fed-influencing data before next week's FOMC announcement on Wednesday, 12/13. The Fed is widely expected to hold rates steady for the third time in as many meetings. In fact, Fed Funds traders have a 97.5% probability that they pause yet again. But what people are more interested in is what do they say about the possibility of an additional hike, or are they done? Moreover, what will they say about cutting rates next year? And by how much and when?
Previously, the Fed has said they expect to cut rates by -50 basis points in 2024. But many analysts are now expecting them to cut by -125 basis points. With some (UBS) even looking for as much as a -275 basis point cut.
Even though the last 3 inflation reports have all come in better than expected, the Fed also pays attention to the labor market as the unemployment rate is looked at as a proxy for the economy, and average hourly earnings are a barometer for inflation (wage inflation).
A much hotter than expected report would likely be frowned upon (even though the die is likely already cast for next week). But it would keep alive the idea of future hikes and the fear of inflation coming back.
A weak report (but not too weak), would likely be cheered as it would underscore the idea of a soft landing and that the Fed can finally call their historic rate hike cycle quits.
The Employment Situation report comes out at 8:30 AM ET.
We'll also get the Consumer Sentiment report out later in the morning.
After today, there's just 3 more weeks left in the year.
The Q4 rally has been on fire in November. We saw a little bit of profit taking this week so far. But we are near YTD highs. And the seasonal trends suggest there's plenty more upside to go.
Executive Vice President, Zacks Investment Research
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