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Productivity, Labor Costs Behave; Pre-Markets Still Down

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Wednesday, December 7, 2022

Forget Santa Claus for right now. The blue-chip Dow Jones index is now at its lowest level since November 17th, the S&P 500 the lowest since November 9th. The Nasdaq has fallen in six of the last eight sessions, seven of eight for the S&P. If there’s a silver lining anywhere in sight, it’s that futures are less bad following a revision to a couple key economic prints this morning.

Q3 Productivity was revised — for the final time — to +0.8%, 10 basis points (bps) higher than expected, and a solid jump from the +0.3% reported the last time around. This quarterly rise marks the best quarter of productivity since Q4 2021. And as any economist can tell you, productivity is the key between higher prices and inflation: with higher productivity we see less inflation, even with higher prices.

Q3 Unit Labor Costs were revised down in the final read — to +2.4% from the +3.5% reported in the previous revision. This is the lowest we’ve seen since we were still in the heart of the pandemic era: -4.2% in Q1 2021. And, like with productivity, this metric is key to assessing economic health relative to inflation: lower labor costs is a good thing when we’re looking to curb inflation.

Thus, pre-market indices shrank losses from yesterday’s close moderately: -45 points on the Dow, -15 points on the S&P and -75 on the Nasdaq. We’re still dealing with an inverted yield curve between 2-year and 10-year bonds at a massive 80+ bps margin; what we want to see here is the yield levels getting closer together, not farther apart. It’s a stubborn reminder that we are not yet finished with the possibility of a recession — or it is not done with us.

As Zacks VP Kevin Matras says, what we’ve been seeing over the last week or two isn’t much more than profit-taking. What we’ve been saying here in this column is that we’ll perhaps see a “pop” back to recent highs we saw last week when Fed Chair Powell asserted a 50 bps interest rate hike was in the cards as of December 14th. That’s a week from today.

Otherwise, it’s a slog through a market with few catalysts. Such is trading during holiday season. If there is to be a Santa Claus Rally this year — which would be a welcome diversion from the struggle that has been the 2022 stock market — it looks as if we’ll have to wait a little longer for it. And how much of a pop might we expect? From this vista, probably less than we may have been hopeful for a week or so ago.

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