Stocks Down On First Day Of Trading, FOMC Minutes On Deck For This Afternoon  Image: Shutterstock Stocks closed lower yesterday in the first day of trading for 2023. The tech-heavy Nasdaq led the decline, as they did last year. Although, I'm expecting this year to be much different than last. More on that later. Yesterday's PMI Manufacturing showed the index coming in at 46.2, as expected. Construction Spending came in a bit better with a rise of 0.2% m/m vs. last month's upwardly revised -0.2% and views for -0.4%. On a y/y basis, it was up 8.5%. Solid gain, but it was down from last month's pace of an upwardly revised 9.7%. Today we'll get Motor Vehicle Sales, MBA Mortgage Applications, the ISM Manufacturing Index, and the Job Openings and Labor Turnover Survey (JOLTS) report. We'll also get the FOMC Minutes from last month's Fed meeting. We already know that the Fed slowed their pace of interest rate hikes, and expressed their desire to keep that slower pace going. And that they upped their expected terminal rate target to 5.1%. Traders will try and glean any additional insight as to what their next slowed hike could look like on February 1 (will it be another 50 basis points, or maybe 25 bps instead?), and if there was any further discussion regarding when the Fed expects to hit their terminal rate, and if some members preferred a higher target. That comes out at 2:00 PM ET. Like last year, traders will be focused on inflation, interest rates, and what that will mean for the underlying economy. But, unlike the beginning of 2022, which saw inflation on the rise, while the Fed embarked on one of the fastest rate hikes in history; the beginning of 2023 sees inflation on the decline, with the pace of interest rate hikes slowing, and an end target in sight. Moreover, we saw a recession in the first part of 2022, but we exited that in the back half, with Q3 GDP up 3.2% (it's no longer a recession when the economy starts growing again), and Q4 expected to come in at 3.9% (according to the Federal Reserve Bank of Atlanta's GDP Now forecast).
We will get another look at inflation this month before the Fed's next FOMC announcement on rates on February 1. But for now, the recent downward trajectory on inflation is good news. In spite of the aforementioned headwinds in front of the market this year, there are plenty of tailwinds as well, not the least of which is the favorable seasonal tendency, i.e., the 4-year Presidential Cycle, which shows that year 3 (that's 2023), is the best year of all 4 years. In fact, since 1950, stocks have always gone up in the year after midterms, with an average 12-month forward return of 18.6%. If that statistic holds up, 2023 could look markedly different than 2022. The year has just begun. And the markets, like the Fed, will be data driven. So let's see what the data looks like today. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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