Markets rally on signs inflation is abating, as investors look to next week's consumer price data

Published Fri, Jan 6 20234:01 PM ESTUpdated Fri, Jan 6 20234:13 PM EST

Markets closed out the first week of 2023 on a high note, with the S & P 500 closing up more than 2%, as stocks rallied on fresh signs inflation may be easing. Investors responded favorably to employment data released by the U.S. Labor Department Friday that showed slowing job growth and a greater-than-expected slowdown in wages in December. Later in the day, markets were also buoyed by the ISM's nonmanufacturing purchasing managers' index, which said the services industry contracted last month. Both are evidence that the Federal Reserve's aggressive interest rate hikes may finally be cooling the overheated economy. However, while we will certainly take the win, it will take more than one good day for investors to have confidence that we have seen the lows of this brutal bear market. The next big test will be December's consumer price index report, to be released Thursday. Until we see more concrete indications that the economy is heading into a recession or that growth has stalled, we need to be extremely sensitive to valuations , and continue to focus intently on companies that do stuff, make things and return cash to shareholders. Meanwhile, the fourth-quarter earnings season kicks off next Friday, when the banks – including Club holding Wells Fargo (WFC) – are set to report. We'll be looking closely for commentary from management on Wells Fargo's current operating environment and outlook. This season may also prove a clearing event for many stocks, as analysts will use the reports to sharpen their earnings estimates for the full year. Under the hood, consumer services led to the upside followed by materials and financials, while health care was the only sector to close lower for the week. The U.S. dollar index is holding just under the 104 level. Gold advanced to the upper-$1,800s per ounce region, while West Texas Intermediate crude oil is hovering around $74 per barrel. The yield on the 10-year Treasury stands at around 3.56%. Looking back Within the portfolio, we received earnings results from Constellation Brands (STZ) on Thursday. On the macroeconomic front, the December ISM manufacturing purchasing managers index on Wednesday came in at 48.4%, largely in line with analysts' forecasts, showing the economy contracted for the first time after 30 straight months of expansion. On Thursday, the December ADP employment report was released, showing an additional 235,000 jobs, well above the 153,000 expected by analysts. Also Thursday, initial jobless claims for the week ending Dec. 31 came in at 204,000, a decrease of 19,000 from the prior week and below the 225,000 the market was expecting. On Friday, nonfarm payrolls were reported to have increased by 223,000 in December, exceeding expectations of 200,000, while the unemployment rate fell to 3.5%. Wage growth was below expectations, up 4.6% annually versus a 5% estimate. Also Friday, the December ISM services purchasing managers index came in at 49.6%, well below expectations of 55%. Finally, November factory orders were released on Friday, indicating a 1.8% monthly contraction, greater than the 1% decline Wall Street predicted. What's ahead Fourth-quarter earnings season is upon us. Club holding Wells Fargo is set to report before the opening bell on Friday. Here are some other earnings reports and economic numbers to watch in the week ahead: Monday, Jan. 9 Before the bell: Acuity Brands (AYI), Commercial Metals (CMC), Tilray (TLRY) After the bell: Jefferies Financial (JEF), AZZ (AZZ), WD-40 (WDFC), Accolade (ACCD) Tuesday, Jan. 10 Before the bell: Albertsons Companies (ACI), TD SYNNEX (SNX) After the bell: Inotiv (NOTV), Saratoga Investment (SAR) Wednesday, Jan. 11 Before the bell: Boston Scientific (BSX) After the bell: KB Home (KBH) Thursday, Jan. 12 Before the bell: Northern Tech (NTIC), OrganiGram (OGI) After the bell: RF Industries (RFIL) 8:30 a.m. ET: Consumer price index 8:30 a.m. ET: Initial jobless claims Friday, Jan. 13 Before the bell: Bank of America (BAC), JPMorgan (JPM), UnitedHealth Group (UNH), Citigroup (C), BlackRock (BLK), BNY Mellon (BK), Delta Air Lines (DAL) (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Tourists are lined up for taking photos by the Charging Bull Statue in the financial district of New York City, United States on August 16, 2021.

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Markets closed out the first week of 2023 on a high note, with the S&P 500 closing up more than 2%, as stocks rallied on fresh signs inflation may be easing.