The Investor Entry #2: January 8, 2023
Friday 6th of January 2023 was a very strange day in the stock market. At one point what is traditionally known as bad news reflected in the December Jobs report where it showed a slowing growth in wages was good news for investors. This is understandable as investors are looking for any sign that would show them that recession is not coming.
Yet it seems that no one wanted to see the report that came on the same day which was the Institute For Supply (ISM) Management Report which indicated that the ISM services index came out much lower than expected and lower than November and lower than a very important Threshold.
December 2022 Jobs Report
Although the December US Jobs report came out with employers adding jobs more than expected, the wages report was the one that the market reacted to on Friday.
The main indicator that both investors and traders are looking at is inflation, and their eyes are set on any indicator that would give them any signs on the current and future prospects of inflation.
If the main news was the increase of jobs to unexpected levels and the lowering of unemployment rate to levels reached more than 80 years ago, then the market would have reacted negatively for fears of inflation. It was the second number that brought relief to the market. It was the wage growth that got investors happy. Although the news is not that great when it comes to inflation but investors wanted to feel happy.
Wages are still growing, but at a slower pace. This additional piece of information, “at slower pace,” that got the Dow go up 700 points or 2.1%, and the S&P 500 go up 2.3%, while the NASDAQ Composite surged 2.5%.
All these reactions for the slower pace of wage growth, but what about the ISM index? Why did the market ignore this piece?
The ISM Services Index (December 2022)
Well, for many it was great that the market did not take note of the terrifying news that the ISM services index is giving. The ISM Services index came at 49.6%.
The ISM measures services index measures the economic activity outside of the manufacturing sector, and it came out less than the November 2022 figure of 56.5% and much lower than was economists expected. The forecast for the ISM services was at 55%. This is not all the bad news yet.
The scary news is that the December figure fell short of the 50% threshold. Experts say that having the ISM services figure below this point is an alarming indication of contraction. The last time the ISM services index was below the 50% level was in May 2020 which was a pandemic induced recession.
Another Alarming Number
The new orders index which comes out of the ISM report and another indicator of future economic activity also came short of the 50% level.
The new orders index, the same as the ISM services index, fell below this level the previous time during May 2020.
Fed Interest Rates Policy
I was surprised to find that some experts are saying that the fed might think of a 25 point increase instead of 50 next month. They are basing all this optimism on the slowing pace of wage growth.
I think Monday will be a different story. This weekend investors would have digested the reports that came out on Friday and realize that what the reports really said is the Unemployment is extremely low, and wages are still rising. This does not show the fed is going to ease up its interest rate hikes.
Conclusion
What experts are saying that the story of inflation will be clearer next Thursday when the CPI report comes out, but I see is another 50 point hike in interest rates, slowing economic activity in terms of both ISM services index and new orders index below 50%; all this leads to say recession is coming in the US.
What does that mean for me? I expect the market will still go down, and for me this is good, as I am still in the buying mode. So wait for this watch list notifications to hit and keep searching for low value stocks.
The Investor
Sunday 8 January 2023
About The Author
I started looking into individual stocks in January 2022. I created this diary initially for myself to track my investing progress, and second as a place that I can share my ideas publicly hoping that others will share their ideas and learn from each other, and lastly as an online business where some links that I share are affiliate links, and if anybody bought anything by clicking those links I will get a commission based on that successful sale, which of course will not affect the price that you are buying the product or service at.
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