With the latest jobs data, the Fed finds itself still looking for some slack in the jobs market.

Jobs data for November came out here on Friday. The consensus was for new jobs of 200,000. Instead, the actual number was a rise of 262,000, with an increase in average hourly earnings above expectations. This will put more pressure on inflation, the opposite of what we saw with consumer prices. The participation rate stayed steady, which tells us the job market remains tight. We view these numbers to be negative for markets over the coming weeks, and this is reflected with futures falling before the open.

Nonetheless, markets have made a miraculous recovery since the start of October as over the last two months a good portion of the big losses for the year have been clawed back. This huge snapback rally has more than cut those losses by a third, but in the case of the Dow Industrials by quite a bit more. That index is now down by single digits on a percentage bais for 2022, an amazing feat considering the venerable index was lower by 20% for the year when October was getting started.

What has brought the Dow and the other averages back in 2022? Sentiment has played a huge role, but also a modest decline or even a peak in inflation has been recognized. Seasonally strong bullish sentiment is playing out currently as many look to make back losses from the summer and continue to pile money into the markets.

The peak inflation argument is supported by a strong bond market as yields on the long end of the curve are falling. Yet we don't see a commensurate drop in rates on the short end of the yield curve, which tells us the bond market is pressuring the Fed to slow more quickly or even cut rates sooner, or else risk a recession.

We heard the narrative several times this week about recessionary fears as we also heard from Fed Chairman Jerome Powell, who on Wednesday spoke about slowing the pace of rate hikes. This was hoped for by the markets but was not a lock by any stretch, hence the sharp rally that ensued on Wednesday that brought relief to those looking for conflict resolution. It was a startling reversal of fortune for traders and investors, as many were seeing the same setup for markets leading up to that ominous Jackson Hole speech. Perhaps talking down expectations worked better back then, but Powell seemed less steamed this time around; maybe inflation is starting to fall sharply in his eyes.

The economic data has been quite poor this week other than the sales data, which came in strong following the Black Friday and Cyber Monday sales. There are 23 days remaining until Christmas, so there are plenty of days left to shop. As for other data, the ISM yesterday was a poor report, which followed a stiflingly low PMI Chicago manufacturing report that nosedived to 37, a level not seen since the start of the pandemic. This data, coupled with other weak data, had the Atlanta Fed's GDPNow estimate cut sharply from fourth-quarter growth of 4.8% down to 2.8%.