US stock indexes have closed out their first month of gains for 2023 with the Nasdaq marking a gain of nearly +11% followed by a gain of over +6% for the S&P 500 and nearly +3% for the Dow. In fact, the S&P 500 just logged its best January in four years, and the Nasdaq posted its best January gain since 2001.
There’s now a historical and technical argument being made by the bulls that a strong January performance following a negative year has historically yielded impressive full-year returns. It’s only happened five times, whereas the stock market was down the year before, but opened up January with a +5% or higher bounce to the upside (1954, 1961, 1967, 1975, 2019, and 2023) but in each one of those years, the full year return showed big double-digit gains ranging from up +20% to +45%.
Fed’s policy
Investors today have all eyes on the Fed’s latest policy decision due at 1 p.m. CST and a press conference with Fed Chair Jerome Powell at 1:30. According to the CME FedWatch Tool, Traders currently give a 25-basis point hike a a nearly 100% chance (99.9%) versus 0% for a 50-basis point hike and a less than 1% chance that the Fed leaves rates unchanged. Obviously, a surprise 50-point hike will likely spell trouble for the bulls who have been betting on a more accommodative Fed by the second-half of 2023.
Some bulls are even anticipating rate cuts, although that runs counter to the Fed’s vow to keep rates high for longer than previous tightening cycles. Aside from the amount of today’s rate hike, the biggest question of the moment is whether the Fed will hike rates at its next meeting on March 21-22 or will it decide to pivot. The Fed may not provide that answer today but investors will be listening very closely to Powell’s follow-up press conference in an effort to garner clues as to how officials are leaning. Bulls are pointing to data released yesterday that showed a slowdown in wage gains in the 4th quarter and expect the Job Openings and Labor Turnover.
Data to watch
Survey today will reveal a substantial pullback in company hiring. Analysts anticipate the number of open jobs will drop from 10.5 million in November to 10.2 million for December, though some estimates are as low as 9 million. The trajectory of the data has implications for the Fed’s future policy decisions as the central bank has repeatedly pointed to the labor market as a major factor behind inflation remaining stubbornly elevated.
Also out today is ADP’s Employment Report which economists expect to show job gains dropping back to +158,000 from +235,000 in December. That is slightly lower than consensus for the official January Employment Report due on Friday, with analysts expecting a gain of around +185,000 versus +223,000 in December. Importantly, the Labor Department on Friday will also release revisions for last year’s payrolls data, based on updates to its annual benchmarking process.
There has been some speculation that the government may have overshot on job gains by as much as +1 million or more. Other key data today includes the ISM Manufacturing Index and Construction Spending.
Turning to earnings, Facebook-parent Meta kicks off a two-day stretch of big tech earnings that can potentially reverberate through the wider market. Results from Snap yesterday don’t bode well for tech companies dependent on advertising. While sales were flat for Q4, Snap says sales in the current quarter have declined -7% so far and could be down as much as -10% for the full quarter.
Alphabet, Amazon, and Apple report tomorrow. Today’s earnings highlights include Allstate, Altria, Boston Scientific, Corteva, Humana, Johnson Controls, MetLife, Novo Nordisk, Novartis, Suncor, and TMobile.
S&P500 Just Logged its Best January in Four Years. What Is Next?
