Daily Rundown: January 4

J.D. DURKIN: Good morning, Action Alerts PLUS subscribers. I'm The Street's J.D. Durkin here with Bob Lang joining me to help break down the second trading day of the year 2023. Bob, happy new year to you here, my friend. So what is top in your mind as today's market begins to shape out?

 BOB LANG: Well, J.D., tough to see the markets fail to rise on the first day of trading in this new year. Looking back a year ago, of course, it was the first trading day of 2022 that saw the S&P 500 tag an all-time high above 4,800. I want to say it was about 4,818. It so long ago. It was the highs of the year. And that was it-- down 20% in 2022. So it was like hitting the top of the mountain, J.D., and then sliding all the way down to the bottom in 12 months.

Did we do the same thing yesterday? Obviously, time will tell. But when buyers tagged that 3,900 area yesterday, it was rejected hard. And so we'll have to see if that turns out to be the high of the year. I'm not sure if it will be. There's going to be a lot of volatility, of course, in 2023. Today is the last day of the Santa Claus rally period. And, of course, that that's just an indicator, right? Now, people are expecting the markets to rally every single time the Santa Claus rally comes around.

Of course, it's the last five trading days of the year of 2022 this year and then the first two of 2023. So today would be the last day of that. And there's actually-- the tally as of yesterday-- no movement-- well, actually, up two points in the S&P 500 after six trading sessions. So we'll see where we're at after the end of the day today. So, of course, right now, we're about flat. And if we end up flat again today, it's basically-- the Santa Claus rally was a dude.

J.D. DURKIN: OK, so wait. So I know we got a nice-sized relief rally. So just repeat that-- about where we actually sit for the S&P after technically the first six of the Santa Claus rally. You actually say we're up how much?

BOB LANG: Yeah, so we're up two points through yesterday. The S&P 500 did shoot up higher earlier this morning. Now we've pulled back quite a bit. I think we're up maybe about three or four points on the S&P 500 right now. So if you net those together, we're probably about flat for the Santa Claus rally right now, J.D.

J.D. DURKIN: Yeah, the S&P started the day up about 5/10. It's now up about 1/10-- to your point, still in the green but just fractionally there. Now, following yesterday's S&P Manufacturing PMI, we just saw this ISM Manufacturing PMI for the month of December, Bob, here come in a hair softer than expectations at 48.4. How does this fit into AAP's view of the overall economy as well as, of course, earnings expectations?

BOB LANG: Well, it kind of fits into our view that the economy is certainly slowing down here. And the expectations from the Fed was that the economy was going to slow down. And their hopes was that the employment situation was going to soften as well too. But we did see a hot employment number on that ISM. It came in at 51.4, which is above expectations.

We also saw the hot JOLTS number. We were looking for job opening listings to be down to about 10 million from about 10.3 million in the prior month. The prior month was actually adjusted upwards. And then this last month came in at 10,450,000. So there were more jobs that were created over the last month or so. So this is one piece of information that the Fed is looking at and saying, look, the only way we're going to come back with a little bit easier or a reflexive policy to the downside is if we get a little bit of relief on the jobs market. And the jobs market remains tight.

Friday, we're going to have the jobs report, of course. And we're going to see wages. That was been basically been a concern of the Fed for the past couple of months. And if wages are hot one more time, you can expect the Fed to continue to remain hawkish with a tighter policy.

 J.D. DURKIN: Of course, that makes today jobs reports eve-eve. So we are getting closer there to the first Friday of the month. I do want to ask you about JOLTS, of course-- the Bureau of Labor Statistics Jobs Opening and Labor Turnover Survey. It kind of might get overshadowed a little bit, especially with Friday's JOBS report, which we just mentioned. Why should members keep an eye on the figures that we got here from JOLTS? And what did we learn?

BOB LANG: Well, the job openings tells us the desire-- the demand for labor from corporations. The more job openings there are, the more chances that people have a chance to get a job. And it basically translates into a stronger economy. We have a name in our portfolio, which is AMN Healthcare, which is basically nurses and medical staff.

And we've seen for certainly the past 18 months or so a really tight labor market in this particular group. So we're happy to hold that name. And we think, in other sectors as well too, especially in the manufacturing-- as I mentioned earlier, we had a strong labor number for ISM, we think, in manufacturing, which is going to help names like United Rentals and Vulcan Materials-- names that we have in a portfolio-- do well and be able to compete with some of the other names out there that are also bidding for jobs.

J.D. DURKIN: And, of course, finally, we get an inside look at the closed-door talks of the Fed-- the release of the minutes there from the FOMC December rates meeting-- that decision there. What will you be looking for? And what more can we learn from that? And people will say, well, we already know what the decision was. But what can we learn from actually looking at the minutes.  

BOB LANG: Well, I really don't think there's going to be nothing much to interpret here, J.D. I think the Fed's statement pretty much dictated their policy in 2023. And the projections are likely to be discussed. And we'll probably see some comments about that. And remember, the projections that came out in December are going to be revised once again in March. But that's two meetings from now.

These projections were raised for the Fed funds. They took their terminal rate up to close to 5% to 5.25%-- maybe even higher than that. Unemployment was sharply revised upwards from 3.7% to about 4.6%, J.D. And then they cut estimates for GDP to about a 0.5% of growth in 2023. So even if we have a strong fourth quarter-- which the Atlanta GDP now is telling us 3.9% on the quarter-- the Fed is looking for a sharp downgrade for GDP in 2023.

The first meeting of the year, of course, is in a month, with rotation of voting members to Minneapolis, Chicago, Philadelphia, and Dallas. And three of these members are new on the Federal Open Market Committee and will be voting for the first time. The market is looking for another rate hike at this meeting, of course, J.D. and perhaps 25 basis points or even 50 basis points-- about 35% chance of a 50 basis points. So it's still on the table-- and then maybe another pause after March rate increase. So we have a lot to consider over the next several weeks.

J.D. DURKIN: Is it safe to assume that the era of the jumbo rate hike of 75 basis point is firmly in the rearview?

BOB LANG: You know, anything's possible, J.D. if inflation remains sticky. And we've seen some areas in the core inflation that remain very sticky. I think the 75 basis point rate hikes are probably a thing of the past, as you just mentioned. But, certainly, they have to keep the fear of higher rate hikes out there in front of the marketplace so people don't get too complacent to start getting ahead of what the Fed might do or might not do.

We've seen that anticipation get squashed many, many times. Look, I mean, the S&P 500 ran up 200 points on the CPI number that came out in November. We're almost back to filling that gap down at 3,750. So, basically, we went up and came back down again. So that anticipation over a good number-- probably a little bit too premature.

J.D. DURKIN: All right. Thank you as always for the inside, Bob. I appreciate you being here, and a very happy 2023 to you, my friend.

BOB LANG: You too, J.D. Great to be with you.

J.D. DURKIN: All right, brother. All right, that is going to do it for us here today, members. Chris and I will be back here tomorrow to react to those Fed minutes and so much more. We'll see you then.