To The Moon

Stock market bulls cheered Friday's jobs report showing wage growth cooled last month, in a sign of inflation pressures easing. Equities climbed sharply in a "sign of relief," even if the Federal Reserve's battle bringing down high inflation is not yet done.

Nonfarm payrolls increased by 223,000 for the month, above the Dow Jones estimate for 200,000, while the unemployment rate fell to 3.5%, 0.2 percentage point below the expectation.

An Overview

The S&P 500 index has fallen around 17% over the past 12 months after the Fed raised interest rates by 4.25 percentage points in 2022 in an attempt to crush inflation that hit a four-decade high of 9.1% in June based on the consumer-price index.

Earlier this week, minutes released from the December FOMC meeting dashed hopes of a reduction in the Federal Reserve's key lending rate this year. The minutes said the committee's participants indicated last month that they expected higher interest rates to remain in place for "some time." In addition, "no participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023," the minutes said.

A Short Term Relief?

However, investors' rate worries eased on Friday as the Labor Department's report of December nonfarm payrolls showed an increase of 223,000, the smallest addition since December 2020, compared with a downwardly revised increase of 256,000 in November. Average hourly earnings growth also slowed. Investors are hoping signs of a slowing labor market may keep Fed officials from raising rates by as much as they otherwise would.

The Fed has "more work to do," Atlanta Fed President Raphael Bostic said Friday during a speech on a panel sponsored by the National Association of Business Economics in New Orleans. Bostic said he would like to see the Fed raise its benchmark rate above 5%, but "not a lot above 5%."

Also on Friday, Fed Governor Lisa Cook said in a speech at the meeting of the American Economic Association in New Orleans that "inflation remains far too high, despite some encouraging signs lately, and is therefore of great concern."

That's "very strange," said Eugenio Aleman, chief economist at Raymond James, in a phone interview Friday. Aleman said that "seasonal factors" may have led to the contraction and that he expects the ISM services index could climb back into expansion territory at the next monthly reading.

Still, Aleman said he's expecting a "shallow" recession to begin in the second quarter, and that the Fed might pause its rate hikes after potentially hiking by 25 basis points at each of its next two meetings.

Analysts have been lowering their expectations for the next round of corporate earnings, forecasting the first earnings contraction since the third quarter of 2020, according to the research company FactSet.

“With the record-low unemployment rate indicating that there is still so much work ahead of them, Fed policy rates are set to rise above 5 percent within just a few months, and a hard landing looks to be the most likely outcome this year,” said Seema Shah, the chief global strategist at Principal Asset Management. “The recession clock is ticking.”

What's Next?

Could this surge trigger another round of bull trap near 395 from the weekly chart posted? A poor CPI reading on Jan 12 should push SPY nearer to the resistance level for another round of short near end Jan as FOMC meeting falls on Feb 1&2.

Take a break & a restful weekend. We've another 51 weeks to go in 2023. Follow me for more trades trigger. Trade safe & take care!

@TigerStars

@CaptainTiger

@MillionaireTiger

@Daily_Discussion

@Tiger_SG

@TigerPM