Jobs report hangs over markets in first week of new year

Published Fri, Dec 30 20223:02 PM ESTUpdated Fri, Dec 30 20225:12 PM EST

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

The first week of the new year will be a busy one with December's jobs report looming Friday, and many investors may be looking for ways to fix up their portfolios after 2022's battering. Following a negative year, the stock market's worst losers can be the next year's winners. Investors may already be bargain hunting in the most damaged sectors — such as technology and consumer discretionary. Good news for investors is that the broader market has been higher 81% of the time in the 12 months following a down year, according to CFRA. "History recommends rotating from 'first to worst' by getting out of those likely defensive groups that held up best during the decline and rotate into those sectors that fell the furthest," said Sam Stovall, chief investment strategist at CFRA. The defensive utilities sector was one of the best, declining just 1.4% and second only to the energy sector's 59% gain . Stocks closed out 2022 with their worst losses since 2008. The S & P 500 closed at 3,839.50, down 19.4% for the year, even with a more than 7.1% gain for the fourth quarter. The index was slightly negative in the final week of the year but down 5.9% for the month of December. The Nasdaq was far worse, with a 33% decline for the year. What to watch Friday's jobs report is one of two big events on the market calendar in the coming week. The Federal Reserve releases minutes from its December meeting on Wednesday at 2 p.m., and investors will be hoping to glean clues on the size of its next rate hike and its future intentions. The jobs report is very important because it is the final employment report the Fed will consider before its next meeting, Feb. 1. After a 50 basis point hike in December, many investors are now looking for a 25 basis point increase in February. A basis point equals 0.01 of a percentage point. CNBC Pro's guide to investing in 2023 Here's how the U.S. economy could escape a recession in 2023 Oil expected to stay volatile in 2023, but the price could depend on China reopening Top Wall Street strategists see a bumpy 2023 ahead with minimal returns for stocks Economists expect 217,500 jobs were created in December, compared with 263,000 in November, according to Dow Jones. The unemployment rate is expected to hold at 3.7%, and average hourly wages are expected to be up 0.4%. "It's going to be interesting to see how the market interprets an either too hot or too cold jobs report," said Julian Emanuel, head of equity, derivatives and quantitative research at Evercore ISI. "In all likelihood, the good news is going to continue to be bad news for the stock market because the Fed is entirely focused on cooling the labor market." Economists expect the job market to start slowing down, and many expect to see negative numbers some time next year. The labor market has remained strong, even as the Fed raised its fed funds futures target rate range seven times since March. "Our view is that sometime in the next month or two, the spike in layoff announcements is likely to be met with a material rise in unemployment claims ... which you haven't seen yet," said Emanuel. "It's possible part of that is due to the fact this wave of layoffs so far has been very white-collar-oriented, so there have been severance packages instead of 'see you later' terminations." History as a guide Before 2022, the S & P 500 was negative in 21 years since 1945 and was higher about four out of five times a year later. The average gain in that following year was 14.2%. But when the losses were larger — double-digit declines — the gains were not as great. "Going back to World War II, there were 12 times the market was down by double digits," said Sam Stovall, chief investment strategist at CFRA. "In the subsequent year, the market was up 7.8%." It rose 73% of the time. For all years since 1945, the S & P 500 has averaged an 8.6% gain and was up 70% of the time. Stovall said after every down year in the past 31 years, the four worst-performing sectors in the negative year rose an average 14.8% in the next 12 months, and they beat the market 56% of the time. [S & P data on sectors begins in 1991.] But the four outperforming sectors in the down years continued to rise, averaging an 11.6% gain in the new year. However, those sectors only beat the market 22% of the time. The worst major S & P industry sector of 2022 was communications services, down 40.4% as of Thursday's close. That sector includes internet companies such as Meta Platforms , which is down more than 65% on the year. Next was consumer discretionary, off 37.6%. That includes retailers and Amazon , which was down about 50% in 2022. Tech was the third worst, down 28.9% and real estate was down 28.4%. Week ahead calendar Monday New Year's holiday Markets closed Tuesday 9:45 a.m. S & P Global manufacturing PMI [December] 10 a.m. Construction spending [November] Wednesday Vehicle sales for December 10 a.m. ISM manufacturing [December] 10 a.m. JOLTS [November] 2 p.m. FOMC minutes Thursday 8:15 a.m. ADP payroll data [December] 8:30 a.m. Initial weekly jobless claims 8:30 a.m. International trade [November] 9:20 a.m. Atlanta Fed President Raphael Bostic 9:45 a.m. S & P Global services PMI [December] 1:20 p.m. St. Louis President James Bullard Friday 8:30 a.m. Employment report [December] 10 a.m. ISM services [December] 10 a.m. Factory orders [November] 11:15 a.m. Fed Gov. Lisa Cook 11:15 a.m. Atlanta Fed President Bostic 12:15 p.m. Richmond Fed President Tom Barkin 3:30 p.m. Atlanta Fed's Bostic