Stock Market Cheers Weak Job Report, But Big Picture Still Looks Grim

January 6, 2023

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8:32 pm

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25 comments

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Economics

S&P 500 chart courtesy of StockCharts.Com, annotations by Mish.

Another Hopium Rally

The S&P 500 is up 2.38 percent today at the top of a sideway channel that started mid-December. The Nasdaq 100 index is similar.

Nasdaq 100 Daily Chart

*Nasdaq 100 chart courtesy of StockCharts.Com, annotations by Mish.*

Both the S&P and Nasdaq are in 3-week consolidation channels, having stabilized for now.

A look at a longer time frame is more telling.

S&P 500 Monthly Chart

The dashed lines reflect support levels. The S&P 500 is just above support. There is at the 3200 level stronger support at the 2400 level.

There is no fundamental or technical reason to believe current support will hold. Ultimately, I expect a decline to the 2400level. A decline to the 1800 level is not at all out of the question.

Nasdaq 100 Monthly Chart

The dashed lines reflect support levels. The Nasdaq is right at support. There is weak support at the 9000 level (not shown) and stronger support at 7000 level.

Beneath that, there is support at 6000 and very strong support at the 4000 level.

There is no fundamental or technical reason to believe current support will hold. Ultimately, I expect a decline to the 6000level. A decline to the 4000 level is not at all out of the question.

Market Cheers a Poor Jobs Report

The market is up today on another Fed hopium rally. Allegedly, there was another strong jobs report but a dive beneath the surface shows otherwise.

For discussion, please see December Jobs: Employment Rises by 717,000 All of Them Part Time

Amusingly, today’s rally is smack in the face of a Fed warning about the markets getting the Fed’s resolve wrong.

FOMC Minutes Show Concern That Markets Do Not Believe the Fed’s Resolve

Please note FOMC Minutes Show Concern That Markets Do Not Believe the Fed’s Resolve

The hopiusts believe the Fed will pivot. It it does, and I think that’s likely, it will not be as much as the market expects and it will be because the Fed broke something.

Neither of those conditions rate to be good for the markets.

But the Fed has trained the markets to act like Pavlov’s dogs, so that is exactly what is happening on weak data reports.

This post originated on MishTalk.Com.

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Jack

2 years ago

Market trading volume has not changed since market decreases started a year ago.

RonJ

2 years ago

“But the Fed has trained the markets to act like Pavlov’s dogs, so that is exactly what is happening on weak data reports.”

Interesting that the FED considers, that part of it’s job is manipulating the stock market.

PreCambrian

2 years ago

I sold some of my non-core holdings (i.e. stocks that I don’t see as having much further upside). Creating some dry powder for potential future bargains. I still have a fair amount of REITs and energy stocks just in case inflation makes a big comeback although I expect them to go down in the short term.

The purpose of these high interest rates, to me, is not to lower inflation since I believe most of the inflation was supply side not demand side, but to crush the carry trade and the concurrent speculative fever that the past 15 years of artificially low interest rates created. There is no path forward that doesn’t result in pain. A market crash would be more intense pain for a shorter duration than a capitulation pivot resulting in long term weak productivity and inflation similar to what has happened in Argentina for several decades.

Six000mileyear

2 years ago

Large daily counter trend moves are a characteristic of bear markets. The tight, choppy trading range over the past 2 weeks is consolidation for the next move down. The 4 year cycle is near the steepest rate of descent, where crashes occur.

killben

2 years ago

“But the Fed has trained the markets to act like Pavlov’s dogs, so that is exactly what is happening on weak data reports.”

Exactly. Deranged Fed – juiced up markets and then rescued them anytime it sneezed – till inflation bit them.

OUdaveguy

2 years ago

I always appreciate the analysis and prognostications from Mish and everyone else on here. I wonder more about Black Swan events than trends. Covid has been every bit the game changer that 9/11 was in our lives. The Fed just consistently devalues the dollar and interferes with markets; the only question is how much damage they are going to do every year; that’s a trend. Forced mRNA shot human rights violations that have made me and so many others sick along with the overt authoritarianism are deadly and destructive Black Swans.

Zardoz

2 years ago

Reply to OUdaveguy

McCarthy promised not to raise the debt ceiling, so probably that in about 9 months…

PreCambrian

2 years ago

Reply to OUdaveguy

Who forced you to get a vaccine, in particular an mRNA vaccine?

Lisa_Hooker

2 years ago

Reply to PreCambrian

US military?

Rbm

2 years ago

Were 2 percent swings common 20 years ago

JRM

2 years ago

All those HOLIDAY JOBS will be gone in Feb, and all the spin on the employment numbers will start by the MSM!!!

MPO45

2 years ago

I think what lots of people here don’t understand is how corporate america works. Most companies live on borrowed money. For nearly the past decade, borrowing money and rolling debt was virtually cost free with near zero percent interest rates. Those days are GONE. Any debt that needs to be rolled over will roll over from 0% to 5% or higher depending on the viability of debt.

Just as in housing, a person that can afford a $600k home at 2% loan can only afford a home half that cost at 6%. Corporate america is no different. The fed has been hiking all of 2022 but it will take time for the debt roll over effect to hit. How much time? 12 to 18+ months for most firms so that puts the start of the crash somewhere around Q4 of 2023 to Q1 of 2024.

Companies borrow money to float payroll, debt, capital expenditures and all sorts of other things so increasing rates hammer all that spending but it takes time to propagate no different than the ripples in a pond.

The one big caveat is this whole labor shortage issue, too many people are retiring and going on disability for health issues (not fraud as some suggest). I expect companies to get squeezed from high labor AND high debt costs but not until the end of 2023. We are on the last leg down. Place your bets accordingly.

shamrock

2 years ago

Ha, weak jobs report. That’s certainly not how the rest of the world sees it.

shamrock

2 years ago

Reply to shamrock

Lowest unemployment rate in 50 years.

Mish

2 years ago

Reply to shamrock

It’s how anyone with any common sense see it and the bond market saw it.

worleyeoe

2 years ago

There’s not any sort of an economic cliff, IMO, in view at this point. A recession in the first half of 2023 is less than 15% IMO and is probably only about 50/50 in the 2nd half. It may take until 2024 for a real recession to rear its head. Oil is currently $5 less than what it was this time last year and the Ukraine war hadn’t started yet. Mish has been predicting a shallow recession for many months now. Even a shallow recession is starting to look a little iffy. IMO though, the longer it takes for it to arrive, the more severe it will be. Again, the enormous amount of governmental spending over the next 2 years is going to keep the economy afloat way longer than JPowell would like. A 6% FFR is now a forgone conclusion with 7% by late summer being a very real possibility. Look for the Fed to materially update its dot plot at every FOMC meeting in the first half of 2023.

RonJ

2 years ago

Reply to worleyeoe

“Again, the enormous amount of governmental spending over the next 2
years is going to keep the economy afloat way longer than JPowell would
like. A 6% FFR is now a forgone conclusion with 7% by late summer being a
very real possibility.”

Denninger says the FED is going to keep raising because congress climbed aboard the omni bus. The FED is going to have to counteract the government spending, just as Volker did in 1981, to spending under Reagan. Action and reaction, like Newton.

bobcalderone

2 years ago

Reply to worleyeoe

How can 6% be a foregone conclusion? That would require 3 more raises of 50 basis points and a 25 pointer. It’s more realistic to see the Fed get to 5.25-5.5% and leave it there for awhile, since they have said multiple times that rate increases have lagging effects. They still want to see how their 75 point increases have affected the inflation rate.

vanderlyn

2 years ago

sorry mish, you are great at r/e analysis. but dead wrong on individual stocks we find on sale down at the market place. there is no positive statistical correlation to prices and earnings or economic happenings. unless we have somewhere in the 15 year holding time frame. what we have is the number of stocks on the shelf, the supply and the amount of currency conjured up in the system willing to purchase the items down at the market. if you are gonna fool oneself into thinking there is anymore to this game of chance, then god bless ya, kid. the daily moves are really the realm of carnival barkers and advertising salesmen we call financial news and wall street sell and buy side gals and fellas. i always am fond of having read the classics as a youth. “where are the customers yachts” is a must read for anyone in the game of gambling on stocks and bonds…………..cheers boys and girls, i wish you great luck at the tables tonight.

GruesomeHarvest

2 years ago

A bit off topic, but, agrees with the theme of the lack of reality in the public discourse in Oceania.

https://youtu.be/D23V6UzS3P4

Douglas McGregor is well worth listening to about our feckless foreign policy.

JackWebb

2 years ago

Reply to GruesomeHarvest

I have a standard comment for posts like yours. I haven’t had to post it here, but there’s always a first time: If you are lazy enough to post a link to a 48-minute video without a transcript or a summary, it’s not important enough to matter.

Zardoz

2 years ago

Reply to GruesomeHarvest

Moose and Squirrel not here, comrade.

GruesomeHarvest

2 years ago

Reply to Zardoz

Cute! But misguided and misinformed.

Avery

2 years ago

Reply to GruesomeHarvest

Thank you! McGregor always worthwhile and I don’t require a movie trailer intro. If he marched into Congress in an hour and threw them all out I’d be even more impressed.

Avery

2 years ago

Reply to Avery

MacGregor!

Stock Market Cheers Weak Job Report, But Big Picture Still Looks Grim

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