Genetski: Meta (Facebook) Fell, Payrolls Rose

Seasonally adjusted employment and the economy grew in January, but Meta (Facebook) fell. Consumer prices are rising too.

The Week That Was

Today’s employment report shows private payrolls growing by 444,000 in January, down slightly from a revised 503,000 in December. The revised December figure was more than twice what was reported last month due to seasonal adjustments.

The rapid growth in employment is consistent with the ISM surveys. The data are consistent in pointing to an economy with real growth at a 3%- 4% annual rate going into the first quarter.

January ISM surveys for manufacturing and service companies suggest the real economy continued to grow at roughly a 3% rate in January. This is close to the rate indicated by December data.

January ISM readings were down only slightly from December, remaining in the vicinity of 60. Businesses continue to report problems with a scarcity of labor, shortages in key supplies and no letup in inflationary pressures. In spite of these complaints, demand is rising rapidly and most businesses continue to expect to be able to meet most of the increase in demand.

January initial weekly unemployment claims rose to 240,000 area, up from 202,000 in December. The increase is either a data aberration, or workers fired for not being vaccinated. An alternative measure of unemployment shows those receiving unemployment benefits continued to trend slightly lower in January.

Things to Come

The only significant economic news this coming week is the report on January consumer prices. January oil prices were up 16% from December to $83 a barrel. (They have since moved to $90). With gasoline prices soaring and with businesses reporting no letup in inflation, look for the reported rate of consumer inflation to remain in the vicinity of 6% annual rate, or higher.

Market Forces

Stocks moved erratically higher this past week with weekly gains of 2½% to 4%, for all major indexes. However, yesterday’s 26% decline in Meta (formerly Facebook), sent a renewed chill through all markets.

After Thursday’s decline, the S&P500 and Dow were down from recent all-time highs by 6½% and 4½%, respectively. The other major indexes are 12% to 19% below their peaks.

Technical indicators remain very negative for all major indexes, with 10-day averages below their 50-day averages. The S&P500 and Dow are the only indexes with prices scarcely above major support at their 200-day average. Fourth quarter corporate earnings are proving every bit as erratic as the market. Strong earnings from the likes of Apple and Google are being offset by large misses from the likes of Meta.

Zach’s fourth quarter earnings estimate for the S&P500 calls for a 24% increase from a year ago. If correct, it would mean fourth quarter earnings were down 20% from the third quarter.

With the S&P500 still 29% above its fundamental value, and with negative technical indicators, stocks remain particularly vulnerable to further negative news.

Outlook

Economic Fundamentals: mixed

Stock Valuation: S&P 500 overvalued by 28 percent

Monetary Policy: very expansive