2023 has taken us on a roller coaster ride.
In January, we had a nice rally. Then in February, the market went bust.
What's in store for March? This Friday could reveal the answer...
Is Another Market Rally in Store? We'll Find out Friday
Happy Friday! OK, technically it's only Tuesday. But based on data that's coming in a few days, we could see a wonderful start to our weekend.
You see, payroll data will be released Friday. And remember, I'm "Mr. Labor." That means I'm going to give you the guidance you need so you can make money both later this week and beyond.
Why Payrolls Matter
First, though, let's talk about why payrolls matter so much. There are three reasons:
- Typically, companies are busy to start the year. They're developing new strategies and buying new positions. And this focus tends to overpower a lot of other economic signals. But the start of the year is over. March has begun. Now payrolls come into clearer view. Speaking of a clearer view...
- This time of year, we don't have much data to analyze. Earnings season is over, and that information has already been priced into the market. So we have a lot more slow news days than at other points during the year. That means payrolls inevitably take more of the spotlight.
- Finally, payrolls have a notable impact these days on interest rates. Last month, for example, I predicted strong payroll data that would suggest a strong economy and therefore interest rates would stay higher for longer, a fact the market wouldn't like. Sure enough, the market fell 5% after payrolls came out.
So, what's in store this month?
Bad News is Good News
Short answer? It depends.
You see, we're in an environment where bad news for the economy is good news for the stock market (and vice versa).
Last month, 500,000 payrolls were good news for the economy, but bad news for the market. But this month, I think we're going to see bad news with respect to payrolls and a sizable market jump as a result.
Consider what happened last quarter: Earnings fell 5% year over year. That was the biggest drop since the third quarter of 2020 when Covid was at its worst.
Companies beat earnings estimates by just about 1%. Usually, it's 9%. This is a weak environment for companies. In fact, overall, they're expecting maybe 2% earnings growth this year.
Bottom line: Companies don't hire when earnings are weak. In fact, they start firing...
Don't Be Fooled
But this is where the situation gets a bit nuanced.
You see, a look at jobless claims reveals a number that is low and flat:
So, where is all this firing happening?
Well, companies have announced more than 200,000 layoffs in recent months. But we haven't seen these people factored into jobless claims data yet.
Furthermore, many layoffs have been in high tech, where workers received generous severance packages. And you don't qualify for jobless claims status if you're living on a severance package.
Here's a chart that you should be paying attention to:
This shows the rising number of continuing jobless claims.
The earlier chart shows the number of people who were just let go. This chart, in contrast, shows how many people have long since been fired and are having trouble finding a job.
Get Ready for Friday
As you can see, if companies aren't firing, they're certainly not hiring. And that's going to lead to very weak payroll data this Friday.
But remember, bad news for the economy will mean good news for the stock market.
That's why I believe the market will pop later this week, and discussion will once again center around lowering interest rates. And keep in mind, there are companies out there that are interest-rate sensitive that could certainly enjoy a burst of tailwind here.
If you're a "Pro" subscriber, I'll reveal one of those companies to you. In the meantime, we're in it to win it. Zatlin out.
