Tom Lee: November Jobs Report Not Enough to Sway Fed Hawkish Into FOMC Meeting

From our perspective, it seems like a benign report and we see markets rallying into year-end.

Author:
Tom Lee and the FSI Team
Publish date:
Dec 8, 2023 11:44 AM EST

The November jobs report released Friday morning is overall benign with slightly more jobs added (+199k vs. Street +185k) and details as well with unemployment rate dropping to 3.7% (vs 3.9% expected) or average hourly earnings +4% YoY (inline).

* The rise in jobs vs. October has a lot to do with the strikes ending for UAW and screenwriters. And to me, it does not necessarily feel like the US job market has suddenly strengthened in the past month.

* The most important question is how this affects the Fed thinking into the December FOMC meeting on 12/13. The details of this jobs report do not seem like they will push the Fed to the hawkish side. From this perspective, it seems like a benign report.

* Interest rates did initially surge on this and have since given up some of those gains. Rates surged to 4.28% and have backed off to 4.214%. While this is above the levels of a few days ago, this seems to be bleeding lower from that initial surge. Of course, we need to keep on eye on that.

* The overall incoming data this week continues to speak about the weakening of inflationary pressures. The Manheim Used Vehicle Index November Final was released Thursday. Used car prices fell -2.1% in November. That is a -25% annualized rate of decline. Wow.

* Recall, autos plus auto-related services is 17% of the CPI basket. So that is a significant amount of downside pressure on CPI. Manheim is wholesale, so we will not see this in CPI for two months. November CPI is released next week 12/12.

Bottom line: We see markets rallying into YE. Zig-zag was cancelled earlier this week.

We see equity markets rallying into year-end. We had initially expected a "zig-zag" for December but cancelled that earlier this week. The reason is the benign incoming inflation data.

* We like FAANG/Technology into YE (QQQ) 0.51%.

* Also small-caps and Financials (IWM) 0.77% (XLF) 0.33% (KRE) 1.37%.