The November jobs report and the Fed matter most to markets in the week ahead

Published Fri, Nov 25 202211:18 AM ESTUpdated Fri, Nov 25 20221:12 PM EST

Patti Domm @in/patti-domm-9224884/@pattidomm

November's jobs report is the big event for markets in the week ahead, and it could provide important insight into the path of Federal Reserve interest rate hikes. Stocks were higher in the shortened holiday week, with the S & P 500 up as Treasury yields slid and the dollar weakened. The post-Thanksgiving week will be a relatively busy one, crammed with economic data on employment, inflation, manufacturing and spending. There is also a flurry of Fed speakers, including Fed Chairman Jerome Powell , with a timely speech Wednesday at the Brookings Institution on labor and the economy. "It's all about the labor report. We know this is what the Fed is really focused on," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. "So, obviously it's going to be a big part of their thought process - how the labor market is doing and whether we're seeing that loosening that they want to see. The euphemism for loosening is higher unemployment." The labor market has cooled only slightly, as other parts of the economy have slowed. Wage gains and worker shortages have helped propel inflation. Economists see the Fed's rate hikes chiseling away at job growth and possibly even turning negative. But the labor market has been more resilient than expected, challenging the Fed's efforts to tame inflation by slowing economic activity. Economists expect the economy added 200,000 jobs in the month of November, down from the 261,000 in October, according to Refinitiv. "The estimate is you need about 100,000. That is equilibrium, so we're running 200,000 plus," said Schwab's Jones. "That suggests the labor market is still pretty tight. So some slowdown is likely to occur over time. I think it will happen sooner rather than later." The Fed next meets on Dec. 13 and 14 and is widely expected to raise its fed funds target rate by a half percentage point. Friday's jobs data will be the final monthly employment report before that meeting. The consumer price index on Dec. 13 is considered to be the most important data ahead of the Fed's rate decision on Dec. 14. If the employment report is stronger than expected, there's some concern the Fed could continue hiking at the pace of three-quarters of a point, the size of its last four rate increases. If it's weaker, economists still expect a half percentage point hike, but the outlook of future rate hikes could change if the data becomes much weaker. 'Bad news is good' "Right now bad news is good news for the market, and that could probably stay that way until the Fed meets or maybe through the Fed meeting," said Scott Redler, partner with T3Live.com. "For now, the market has been glass half full versus empty." Besides the jobs report, there is the Job Openings and Labor Turnover Survey (JOLTS) report Wednesday, as well as the Fed's beige book on economic activity. On Thursday, the October personal consumption expenditure data will provide an update on consumer spending, but it also includes the PCE deflator, a key inflation metric watched by the Fed. Monthly vehicle sales and the ISM manufacturing survey are also released Thursday. The consumer will be an important focus, after the traditional launch of the holiday shopping season on the day after Thanksgiving. Investors will be watching for reports on the strength of Black Friday weekend shopping, as well as "cyber Monday" shopping on Monday. "Whatever view you want to have on the consumer right now, you can find a data point to support it," said John Porter, Newton Investment Management chief investment officer. Retail sales for October jumped a surprising 1.7%, but consumer sentiment in November was weaker. "You're seeing a lot of people wrestling with conflicting data points. Some people point to strong consumer credit trends as a signal that suggests consumers will continue to spend," said Porter. "But then you see some data for car loans. Credit quality is deteriorating. On the margin, you're seeing the consumer trading down and being more price sensitive." Porter said the jobs number is the most important data of the week, but it may not tell the whole story. "You have this unique dynamic, where you've seen the well publicized job cuts and hiring freezes in Silicon Valley," he said. Those numbers may not make a big difference in the overall jobs picture. "Every slowdown is characterized by its own catalysts. This is a strange one, where you have the chairman of the Fed standing at the podium begging people to act more conservatively. But then if you try to fly anywhere, planes are sold out. Prices are insane," Porter added. "If he could speak to CEOs around the country, Powell would ask them to act with more caution, with their R & D spending, to hold down on hiring." Porter expects the Fed to raise rates a few more times, then hold them at high levels. "[Powell] needs to see a bit of demand slow down to help him," he said. "He's desperately trying to get people to slow down their behavior." Technically speaking The major indexes were higher in the past week. Utilities and materials were the strongest major sectors, with energy and tech notching the smallest gains. The S & P 500 was up 1.5% for the week, while the Nasdaq was up 0.7%. The dollar index was down 0.8% for the week, while the closely watched 10-year Treasury yield edged down to 3.70% on Friday. Redler said he is targeting an area around the 200-day moving average on the S & P 500 as the next potential upside move. The 200-day was at 4,059 Friday, about 30 points above Friday morning's trading level. The 200-day is a momentum indicator and is simply the average of the last 200 closing prices. "Holding above 4,000, as we await the jobs report and those other economic reports would be constructive for one more move before Christmas," he said. Redler said his view of the Santa rally period is the Tuesday before Thanksgiving through the end of the year. Apple, the biggest stock by market cap, was under pressure Friday, as labor unrest continued at the factory of its Chinese supplier Foxconn. " Apple could be a factor for tech as the S & P needs to digest above 4,000," he said. Week ahead calendar Monday Earnings: Azek 12 p.m. New York Fed President John Williams Tuesday Earnings: Hewlett Packard Enterprise, NetApp, CrowdStrike, Intuit 9 a.m. S & P/Case-Shiller home prices 9 a.m. FHFA home prices 10 a.m. Consumer confidence Wednesday Earnings: Salesforce, Box, Petco , Pure Storage, Splunk , Five Below, Hormel, Snowflake, Octa, Royal Bank of Canada, PVH, Victoria's Secret , Synopsis, La-Z-Boy 8:15 a.m. ADP employment 8:30 a.m. Real GDP Q3 second reading 8:30 a.m. Advance economic indicators 8:50 a.m. Fed Governor Michelle Bowman 9:45 a.m. Chicago PMI 10:00 a.m. Pending home sales 10:00 a.m. JOLTS 12:35 p.m. Fed Governor Lisa Cook 1:30 p.m. Federal Reserve Chairman Jerome Powell will speak at Brookings Institution event on the outlook for the economy and the changing labor market. 2:00 p.m. Beige book Thursday Monthly vehicle sales Earnings: Kroger, Zscaler, ChargePoint, Dollar General, Ulta Beauty, Ambarella, Lands' End, Ambarella, Designer Brands, American Outdoor Brands, Asana, Marvell Tech, Big Lots, Toronto Dominion, Bank of Montreal, Canadian Imperial Bank, Zumiez 8:30 a.m. Initial jobless claims 8:30 a.m. Personal income/spending 8:30 a.m. Personal consumption expenditures 9 a.m. Fed Governor Bowman 9:45 a.m. Manufacturing PMI 10 a.m. ISM 3 p.m. Fed Vice Chair for Supervision Michael Barr Friday Earnings: Cracker Barrel 8:30 a.m. November employment report 10:15 a.m. Chicago Fed President Charles Evans