Stocks closed modestly higher on Friday, but down for the week.
That ended a 9-week winning streak for the Dow, S&P and Nasdaq.
Last week's pullback was likely driven by profit taking. You can be sure many waited until the new year began to pull profits so they could to push their tax obligation into 2025 rather than 2024.
The upside of that, of course, is the lower prices will give others a chance to build positions at better entries rather than have to chase it higher.
Because the outlook for 2024 is for more gains. So the pullback is a welcomed sight for many. But unlikely to stay here for long.
Friday's Employment Situation report came in much higher than expected at 216,000 new jobs in December (164,000 for the private sector and 52,000 for the public), vs. the consensus for 164,000 (127K in private and 37,000 in public). The unemployment rate, instead of ticking up to 3.8% as expected, stayed the same at 3.7%. And average hourly earnings rose 0.4% m/m vs. views for 0.3%, while the y/y rate rose to 4.1% vs. last month's 4.0% pace and views for 3.9%.
The job tally revisions to previous months went in the opposite direction, however, with October revised lower by -45,000 to 105,000 (from 150K), and November revised lower by -26,000 to 173,000 (from 199K).
The industries with the biggest job gains were: Government Employment with 52,000 new jobs (with local government up 37K and federal government up 7K), Leisure and Hospitality was up 40,000, Health Care was up 38,000, Social Assistance jobs rose by 21,000, Retail Trade was up 17,000, Construction jobs were also up 17,000, and Professional and Business Services gained 13,000 new jobs.
Stocks initially fell on the news. Then proceeded to hit their highs of the day early on. After that they traded back and forth (positive and negative), throughout the day before settling higher by the close.
One school of thought is that the stronger than expected jobs report could underscore the higher for longer mantra since rates are clearly not overly restrictive (and quite possibly not restrictive enough), to get inflation back down to 2%.
The other idea is that the stronger than expected jobs report is proof that we are indeed headed for a soft landing, and the trend of falling inflation, is more important than the fear of it not falling enough or going back up.
This will be the debate for the foreseeable future as traders and the Fed try to figure out when the first rate cut will begin and how many should ensue afterwards.
For now, the outlook remains bullish.
Moreover, the earnings estimates for the S&P 500 tell a similar story of expected growth with Q1'24 expected to show earnings up 5% and sales up 3.6%; Q2'24 expected to show earnings up 10.4% and sales up 4.8%; and Q3'24 expected to show earnings up 7.8% and sales up 5.1%.
This week will be our first full week of trading in the new year.
While the Santa Claus rally is over, the January effect is still in play, which is the seasonal tendency for stocks to increase in January following year-end tax considerations, as well as investors flush with optimism and potentially new cash to invest with.
With only 4 trading days into January, and 17 more to go, there's plenty of time to see green this month.
And this year.
*Content provided by Zacks Investment Research. An American company dedicated to the production of independent research and investment-related content. It was founded in 1978 by Len Zacks, based on his insights while pursuing his Ph.D. at MIT.