It was another down session yesterday, but it was also another a session that saw major indices climb well off intra-session lows. Buyers were still focused on old-school quality, resulting in more 52-week highs than lows on the New York Stock Exchange (NYSE). Overall, market breadth remains negative, and the marker remains tentative. In addition, there was a sea of red outside Energy (XLE) names.

Market Breadth	NYSE	NASDAQ
Advancers	1,293	1,898
Decliners	1,831	2,715
New Highs	64	106
New Lows	37	91
Up Volume	1.71 billion	1.99 billion
Down Volume	2.16 billion	2.75 billion

Investor Sentiment

Bullish sentiment tumbled back to 20.5%, but bearishness tumbled just as much as more investors were neutral. It is consecutive weeks of negative spread-shattering record books, but it hasn’t been a great contrarian indicator.

Fed Rate & Bond Yield Watch

This morning’s jobs report for December will have a sizable impact on the market. The notion of a 50-basis points (bps) rate hike is gaining. This could become official, depending on the data and cheerleading.

Keep an eye on bond yields, which have essentially been sideways, but hinting at rallying back to recent highs – that would roil the equity market. The Fed promises destruction unless unemployment begins to spike.

Portfolio Approach

There are no sector weighting changes this morning to our Hotline Model Portfolio.

Jobs Report

Make it nine times in a row the jobs report has come in better than expected, which extends what was already a record-shattering achievement.

At 223,000 the December release is better than 200,000 the consensus but continues to drift lower.

Seeing the print, I thought the market would plunge – because the Fed doesn’t want to see a “strong” (I’m saying this tongue-in-cheek) report.  But there were some serious issues with the report that are problems for Main Street but exactly what Powell & Co want to achieve.

Wages

• Monthly wage growth for November was revised lower to +0.4% from initial read of +0.6%.
• Yearly wage growth for December came in at 4.6%, which is the lowest since August 2021.

Participation

The participation rate edged higher to 62.3 from 62.2 as civil labor force increased 439,000.  Again, this is what Powell wants to see.

Market reaction is everything, but we don’t trust strong opening action – the big test today is how we close.  

Watching bond yields and CME Fed watch tracker.

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