Stock indexes are lower to start the week with little in the way of “new” information or headlines. Bulls have been hoping that typical seasonal tailwinds might help pull stocks higher through the end of the year. However, they are up against overwhelmingly bearish sentiment as forecasts for both an earnings and economic recession in 2023 continue to pile up.

Federal Reserve

Many of Wall Street’s biggest bears believe the Federal Reserve is making a mistake in continuing to tighten monetary policy despite signs of slowing growth and declining inflation.

Some new concerns are now being raised by a report from the Philadelphia Federal Reserve that suggests the labor market may not be nearly not as strong as data has been indicating. The Philadelphia Fed every quarter revises state payroll numbers using the same methodology as the US Bureau of Labor Statistics uses for its annual revisions. According to their revised estimate for Q2 2022, the US added only +10,000 jobs rather than the +1.12 million initially estimated. That would mean the US job market essentially ground to halt as opposed to expanding at a rate that has alarmed Fed officials and other inflation hawks.

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However, it is wage growth trending around +5% or more that has the Fed worried, not necessarily the number of jobs being added. So whether this discrepancy would have any material impact on the Fed’s current tightening plans is debatable. It would, however, change investor perceptions of the US economy.

Keep in mind, many investors that believe recession is coming in 2023 have been working on the premise that a strong labor market would make it a relatively mild one. But if unemployment is already substantially higher than what most have been penciling, that would imply there is less “cushion” and the economy could be facing a harder landing as a result of the Fed’s aggressive tightening campaign.

Data to watch 

Today, investors will be digesting Housing Starts & Permits with most anticipating another monthly pullback in the face of higher mortgage rates that, combined with construction costs up more than +30%, have curtailed activity across the US housing sector.

On the earnings front, there are a couple of big names to watch today, including FedEx, General Mills, and Nike.

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Wishing you a great week!

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