January 30, 2023
Forefront‘s Monday Market Update
It is easy to get lost in the myriad of data thrown at all of us from the TV, newspapers, blogs, podcasts, and whatever other medium you use to consume content. We even have so-called “financial experts” on TikTok using fear to sell complicated and expensive insurance products. Last week I talked about the critical pieces of data you should follow this year to block out the rest of the noise. This week let’s discuss the most pressing questions for 2023.
Why is Inflation Falling?
Is inflation falling because we are getting back to normal or because we are hurdling toward a recession? I can’t think of a more critical question; the answer will shape the direction of the economy and stock market for 2023.
I know one thing; we are not in a recession today. Last week we got a 4th quarter GDP reading of annualized growth at 2.9%. If we account for inflation, the US Economy grew by 2.1% in 2022. At 3.5% unemployment, that is a pretty good economic year. Tell that to all our portfolios, however.
High rates for an extended period of time might cause some issues down the road, or the Fed could push too hard and too far, but we have been hearing about a recession for over a year now, and the risks are not unknown.
We are only 30 days into January, but for tech employees, this month has felt like an eternity. As each day passes, we get word of another tech company announcing layoffs. Are these layoffs a precursor to massive layoffs across the entire economy or a symptom of tech companies becoming bloated during the economic boom?
The Wall Street Journal wrote an article that described the insane hiring of major tech companies from September 2019 until September 2022. In this time frame, the employee count at Amazon doubled! They went from about 600,000 employees in 2018 to 1.6 Million in 2021. Likewise, Microsoft’s employee count increased by 53%, Alphabet’s by 57%, and Meta’s employee count was up an incredible 97%.
We will hear executives play the blame game with interest rates and the economic environment, blah, blah, blah. They overhired and now must correct the problem.
Get Off My Lawn
We have replaced the age-old “get off my lawn” complaint with “no one wants to work anymore.”
Let’s put this to bed once and for all. If you are 60+ years old, there is a good chance your formidable years overlapped with the groovy 60s, and you remember your parents talking about how your generation would ruin the world. The generation after you thought the next group of young people would destroy the world, so the pattern went. Every generation ends up growing up and becoming high-quality, productive members of society, so the pearl-clutching right now about “quiet quitting” or “side hustles,” etc., can stop.
Data from Bloomberg show that 5.1 million applications to start new businesses were filed last year, compared to just 3.5 Million in 2019. If you do the math, that means every day in 2022 saw 14,000 new businesses were created. This ranges from your neighbor starting a dog walking business to tech workers who have been laid off banding together to build a better product than before. Young people mainly start these businesses; I would hardly call it lazy.
Unemployment is currently lower than it ever reached in the 70s, 80s, 90s, and 00s, and labor force participation is right back where it was before the pandemic.
Please don’t get bogged down by the minutia or buy into the anger-provoking language that everyone is lazy, no one works, and the economy will fall apart because of it. Every generation thinks the young people of the day will ruin the world, and every generation has been wrong. So let’s stop that incorrect rhetoric now!
So how does this impact all of you?
Why inflation is falling will be a key piece of data for 2023
Young people aren’t ruining the world or causing a recession. Don’t buy the fear-mongering.
Stock market calendar this week:
|MONDAY, JAN. 30|
|TUESDAY, JAN. 31|
|8:30 AM||Employment cost index|
|9:00 AM||S&P Case-Shiller home price index (SAAR)|
|9:00 AM||FHFA home price index (SAAR)|
|9:45 AM||Chicago business barometer|
|10:00 AM||Consumer confidence index|
|10:00 AM||Rental vacancy rate|
|WEDNESDAY, FEB. 1|
|8:15 AM||ADP employment report|
|9:45 AM||S&P manufacturing PMI (final)|
|10:00 AM||ISM manufacturing index|
|10:00 AM||Job openings|
|10:00 AM||Construction spending|
|2:00 PM||Federal funds rate|
|2:00 PM||Federal funds projection|
|2:30 PM||Fed Chair Jerome Powell news conference|
|Varies||Motor vehicle sales (SAAR)|
|THURSDAY, FEB. 2|
|8:30 AM||Initial jobless claims|
|8:30 AM||Continuing jobless claims|
|8:30 AM||Productivity, first estimate (SAAR)|
|8:30 AM||Unit labor costs, first estimate (SAAR)|
|10:00 AM||Factory orders|
|8:30 AM||Core capital goods orders (revision)|
|FRIDAY, FEB. 3|
|8:30 AM||Nonfarm payrolls|
|8:30 AM||Unemployment rate|
|8:30 AM||Average hourly earnings|
|8:30 AM||Labor-force participation rate, 25-54 year-olds|
|9:45 AM||S&P U.S. services PMI (final)|
|10:00 AM||ISM services index|