Stocks End Lower Ahead Of This Morning's Employment Situation Report  Image: Bigstock Stocks closed sharply lower yesterday ahead of this morning's Employment Situation report. The markets were already on edge after getting hotter than expected inflation reports over the last few weeks, and comments by Fed Chair, Jerome Powell this week saying the Fed may increase rates higher than previously expected, and possibly faster than previously expected. That opened the door to a potential 50 basis point rate hike come March 22 vs. the widely anticipated 25 bps hike. And a possible terminal rate of between 5.25%-5.50% (midpoint of 5.38%) vs. the Fed's previously hinted at 5.10%. Of course, as Mr. Powell has said, they have not yet made that decision, and they are not on a preset course. And that they would be watching the upcoming economic reports (which includes today's jobs report, as well as next week's CPI and PPI inflation reports), to help inform their decision. In other news, the Weekly Jobless Claims report increased more than expected with 21,000 new claims last week at 211K vs. the consensus for 195K. Although, the Challenger Job-Cut report came in at 77,770 vs. last month's 102,943 cuts. But this morning's Employment Situation report is the report everybody is waiting on. And the consensus is calling for 223,000 new jobs being created last month (213K in the private sector and 10K in the public). Those are solid numbers, although a significant drop from last month's sharply higher than expected 517K. There are two big questions for today's jobs report: 1) will the jobs market remain hot with more jobs being created than expected, or will it finally show signs of easing?, and 2) will good news be considered good news (strong jobs, higher stocks), or will good news be considered bad news (strong jobs, lower stocks), or the reverse of that – will bad news be considered bad news (lower jobs, lower stocks), or will bad news be considered good news (lower jobs, higher stocks)? We will soon find out. That report comes out at 8:30 AM ET. As tough as it's been to watch the market pull back over these last couple of weeks, the charts still look fine. And for those wishing they had beefed up their position sooner this year (after watching the market soar in January), the recent dip might just be the best thing that could've happened for those expecting more upside to come this year. Inflation and interest rates, and therefore the economy, will be key drivers for what the market does this year. But let's also not forget that the seasonals look great this year too. For one, the 4-year Presidential Cycle shows that year 3 (that's 2023), is the best year of all 4 years. Since 1950, stocks have always gone up in the year after midterms, with an average 12-month forward return of 18.6%. Moreover, history shows a high probability of outsized gains following a down year for the market. The S&P was down by -19.4% last year. It was the first down year since 2018, and the worst down year since 2008, when it closed lower by -38.5%. (For those wondering, 2009 was up 23.5%. So let's hope we see something similar this year.) In the meantime, all eyes will be on this morning's employment report. Should be a busy day. Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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