VIDEO: Why We're Focused on This Specific Data Point in Friday's Job Report

In today’s Daily Rundown, Chris Versace explains why we’re sitting on the sidelines today as we get ready for the November Employment Report and what it says about wage gains during the month. That could be another indication inflation pressures are moving the wrong way, making it another risk to the market’s December rate cut expectations. 

He also shares plans to freshen up the portfolio Bullpen as we get ready for 2025, outlining the steps we’ll be taking to do so. 

Transcript

CHRIS VERSACE: Hey, everyone. Chris Versace here. Today is Thursday, December 5, and we are coming off yet another set of record highs for both the S&P 500 and the NASDAQ composite.

However, the market does look like it's going to take a bit of a breather today. Part of that, I think, has to do with the fact that both the S&P 500 and the NASDAQ, while they did set those record highs yesterday, they are in overbought territory.

That's right. When we look at the relative strength index levels, both are now above the 70 level, and that is one reason that we are going to tread a little more carefully in the very near term.

And today, we do have some retail earnings out that we're going to parse, we do have a Fed speaker midday, but by and large, I think the market is waiting for tomorrow's November employment report, especially following the comments that we shared with you from Fed Chair Powell yesterday.

If you missed that alert, Powell said that the economy is stronger than the Fed thought it was back in September, and inflation is running higher than expected. That combination led Powell to share, at the DealBook Summit, that the Fed can be, quote, "more cautious" with rate cuts, as it looks to find the neutral rate of monetary policy.

Now, that wasn't the only thing we heard regarding the Fed yesterday. We also received the latest Fed Beige Book, which is the anecdotal collection of comments from the various Fed member banks. And it painted a similar picture to what Powell had to say, but it also shared this.

Job growth and wage growth for entry-level positions in skilled trades were an exception, rising robustly, and are expected to grow further through the next year. Now, when we think about that, we have to say that it really builds on the comments that we shared with you yesterday following ADP's November employment report, which, if you missed that, it showed a pickup in wage gains, both for job stayers and a more pronounced one for job changers.

Also, too, yesterday, we shared with you the uptrend that we identified and the ISM service PMI pricing data. Not so much when you look at it on a monthly basis, but really when you look at it on a three-month moving average, that became very clear of the upward trend in that data over the last four months.

Now when we think about all of that data together, it is going to have us really focus on what we find in tomorrow's November employment report as it relates to wages, when we will be specifically looking at the annual year-over-year wage data. And if it comes in hotter than the 3.9% figure that we saw that is the consensus figure, I should say, for the November employment report, that's going to tell us, yes, inflation is sticky.

But if it comes in ahead of the 4% figure that we saw in the October employment report, well, that is going to continue the upward trend in wage data that began in August. And that is something that the market is going to fixate on, and it is something that the Fed is likely to fixate on, as well. And more likely, what it's going to mean is that the market is not going to like that upward trend in wages. Good for the economy, but bad for the prospect for rate cuts later this month.

Now, we're going to have to balance that with the jobs data that we get because remember, the Fed is following its two purposes. One, stable prices and trying to get inflation back down to 2%. If we see that hotter wage number, it'd be another indication that it is not moving in that direction.

But the second is on maximum employment. So again, we'll want to make sure that the November jobs data doesn't fall out of bed, but i have to say that based on what we saw in today's November challenger job cuts report, which showed the number of hiring expectations has inched up compared to October. And then when we mix in other data this week from ISM, S&P Global with their November PMI findings, and ADP's November employment report, it really comes together to suggest that we should not see a dramatic decline in jobs figures with tomorrow's report.

Now, put it all together. We are going to stay on the sidelines, at least until we get tomorrow's data and based on what we see in that data and its impact on the odds of a December rate cut or a December rate pause, we'll plot our next move with the portfolio. Remember, as of now, the market continues to see a greater probability of the Fed cutting next week, so tomorrow's data could be a sobering wake up call.

When we've seen that in the past, it has led to the market kind of pulling back and retrenching, as it has to adjust its thinking. This is where the market being overbought is really important.

So for those couple of reasons, again, we're going to stay on the sidelines today, but does that mean we'll be sitting on our laurels? No, it does not. Rather, it will be parsing the rash of retailer earnings that came out last night and this morning, and will be contrasting them against Costco's very nice November sales report that they put out last night. Likely, we'll be revisiting our Costco price target today, so a heads up on that. We're also going to start to freshen up the bullpen as we get ready to move from 2024 into 2025.

Now, as we get started, we'll be identifying companies with a track record of superior earnings growth and ones that are poised to do so again. Meaning, they're expecting to grow their EPS faster in the coming year than the market.

Now, is that the only screen that we'll be doing? No, of course not. We'll be doing a lot more fundamental work, some technical work, some thematic work, and we'll want to make sure that we identify multiyear tailwinds for the businesses. And then, the next step is going to be identifying favorable risk to reward entry points as we whittle that list down, going from, what we will call, identified companies to bullpen candidates.

So that's going to be an iterative process. We'll be working it through with you in various alerts over the next few weeks as we, again, kind of close out 2024 and get ready for 2025.

So with that, my friends, I would say, please be sure to check your emails, your alerts. You want to see that process as we walk through it, but you're also going to want to get our other comments today. And of course, I think you'll be very interested as we break down tomorrow's November employment report and share what it means, and, as I said earlier, we plot our next steps with the portfolio.

So that's today's video. Thanks for watching. We got a lot more coming. Stay tuned.

At the time of publication, TheStreet Pro Portfolio had no positions in any securities mentioned.