Daily Market Notes: 1-9-2023

Following the release of the December jobs report and the December ISM Services Index, the market took off huge to the upside after a shaky start and as a result it put in its best showing since November 30th and salvaged what looked like a fifth lower week into one that ended nominally positive.

The Dow started a bit higher and then rocketed steadily upward to end right near its best level of the session with a closing 700 point advance up to 33,630 as it was led by gains in the usual heroes on the higher days such as AMGN, BA, CAT, HON, MCD and TRV.

The S&P was unchanged to start but then accelerated strongly to the upside and ended with a very powerful closing advance of 87 up to 3895 while the Nasdaq, in typical fashion, had the nerve to be 40 lower in that pattern of trailing the other two main indices, but then got a shot of adrenalin to the upside as well with formerly beaten-down technology leaders getting an upside bid and it joined the bullish party to finish with a closing advance of 264 up to 10,569.

Even the Russell 2000 Index of small stocks did really well with a 39 point advance up to 1793 while the VIX naturally declined on an up day and ended at 21.13, once again remaining in a very narrow and tight range for several weeks now.

The market got its first initial upside jolt when the December jobs report came in at 223,00 while the unemployment rate declined down to 3.5%. But what was a hopeful sign for the bulls was that average hourly earnings came in lower than expected at 0.3% and year over year rose by only 4.6% which was perhaps a hopeful sign that could mean easing pressure on the nation’s high inflation rate.  This was the smallest increase since the summer of 2020. On the other hand, it also showed hiring across the job market may still be too strong for the Fed’s liking, even after its series of rate hikes last year.

Then what got the market really moving to the upside was the December ISM Services Index, which showed a decline down to 49.6 after 30 consecutive months of growth and also an easing in the prices paid component, perhaps another sign of softening inflationary pressures. When this report came out at 10am, that is what got indices to go into super strong upside momentum position with the aforementioned results.

Perhaps the clearest sign for investors was in the bond market, where the yield on the two-year Treasury dropped to 4.28% from 4.48% just before the release of the data on the U.S. labor market and in the 10-year Note which collapsed to 3.56% as well.

But trading may remain turbulent in the coming days and weeks as investors keep trying to handicap whether the economy can avoid a recession. Much of the trading is based entirely on expectations for what the Fed will do with rates: High rates slow the economy by design, hoping to push down inflation, while also threatening to cause a recession and dragging down prices for all kinds of investments.

While weaker raises hurt workers, particularly when they are not keeping up with inflation, economists say they could keep the economy out of a vicious cycle where big gains in pay push employers to raise prices for their own products, leading to even higher inflation. It is something that the Federal Reserve has talked about preventing and is part of the reason why it has been hiking interest rates at economy-shaking speed.

With inflation showing some signs of cooling in recent months, the Fed last month stepped down the size of its rate increase with 50 basis points from four straight hikes of 75 points. Traders are largely betting on the Fed to move to the more traditional hike of 25 points at the February 1st meeting.

This week will see the start of the fourth-quarter earnings reporting season with mixed expectations for either an advance or a decline. On Friday, retailer COST made a nice gain after it reported stronger sales for December.

On the awful side was retailer BBBY which is now under the threat of declaring bankruptcy due to slower sales and ended at the sad price of 1.3. This is down from the 30 meme-induced mania from last August when activist investor Ryan Cohen got all of this group excited with some messages that they were going to add three new board members and find ways to improve conditions at the company. This was obviously a failure and has caused monumental losses to those who bought the stock from him in the mid 20’s after it had gotten as high as 30 in addition to those foolish enough to buy call strike prices as high as 80 and who now have NOTHING to show for their efforts.

Earnings this week will see: today – LULU, M lower and ANF higher; Tuesday – BBBY, of all things; Friday – a host of large bank earnings such as: Dow components JPM and UNH plus BAC, BLK, C, DAL, BNY and  WFC.

Economic reports will have: Tuesday – December small business optimism index; Thursday – weekly jobless claims and the all-important December C.P.I.

Donald M. Selkin

Chief Market Strategist


Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.