The December payroll report was yet another upside surprise. Monthly payrolls rose by 223,000, above expectations for a 200,000 gain. As Fed Chair Jerome Powell has noted, the economy needs to create about 100,000 jobs a month to keep up with population growth. That’s less than half the current pace.
- Employment data continues to show strength, but we are also seeing better news on wages.
- December was historically weak, which has many investors worried. But those concerns could be overblown.
- Santa Claus came to town, which is one less worry for investors.
The good news from the report is hourly wages rose less than expected. Hourly wages were up only 0.3%, compared with a huge initial 0.6% jump the previous month. The other bit of good news is November’s initial 0.6% rise was revised down to 0.4%. This matters because the Fed needs to see signs that wage growth is slowing, which are finally appearing. Is there farther to go? Or course. But this lowered trend is quite welcome.
The jobs report had a Goldilocks feel to it. Just like the fairytale, the data was not too hot nor too cold. The economy creating more than 200,000 jobs but hourly wages slowing down is a pretty good combo at this stage of the cycle.
A Bad December
Many market watchers have said the stock market’s poor performance in December could be a warning sign. Historically, the last month of the year is quite strong for stocks. But as with much of last year, that wasn’t the case in 2022. In the end, the S&P 500 fell 5.9%, marking one of the worst Decembers ever and the worst since 2018. So, how worried should investors be?
It turns out that very poor final months of the year haven’t typically been the warning signs we might expect. December 2018 for instance was the worst December ever for stocks, and they went on to gain nearly 30% in 2019. In fact, the last four times the S&P 500 fell 4% or more in December, the following years were up three times for gains of 38%, 26%, and 29%. There are many worries out there, but a big drop in December apparently shouldn’t be one of them.
Santa Came to Town
Let’s end on some good news.
Santa Claus did come to town, as the seven days that encompass the well-known Santa Claus rally were indeed higher. Although many people think the Santa Claus rally takes place during the whole month of December, in reality it is the final five days of the year and first two days of the new year. These seven days sported a gain of 0.8%, the seventh consecutive year stocks were higher during this historically strong period.
These seven days are higher about 80% of the time, and no period is more likely to be positive. At Carson, we take note when the rally does not occur as this typically is a warning sign, such as it was in 2000 and 2008.
The markets present many worries, but the large drop in December and the Santa Claus rally should not be among them.
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Market Commentary: The Goldilocks Jobs Report