Welcome to my latest Mind Over Markets video presentation. The article below is a condensed transcript; the video contains additional details and several charts.

Conflicting economic data continue to bedevil investors. In response to softening inflation numbers, the Federal Reserve makes dovish noises and stocks soar. But then, the labor market shows surprising strength and stocks slump.

We’ve enjoyed solid stock market gains in October and November, and we perhaps stand on the cusp of a year-end “Santa Claus rally,” but regardless, it will be a bumpy ride. Let’s parse the latest data.

Nonfarm payrolls increased 263,000 in November while the unemployment rate was 3.7%, the U.S. Labor Department reported Friday. The payrolls number far exceeded the 200,000 estimate; the unemployment rate was in line with expectations. Leisure and hospitality led the job gains, adding 88,000 positions.

Average hourly earnings jumped 0.6% for the month, double the estimate, and 5.1% annually compared to the expectation of 4.6%.

Both the labor force participation rate, at 62.1%, and the employment-population ratio, at 59.9%, were little changed in November and have shown little net change since early this year.

These surprisingly strong employment gains have occurred, despite the Fed’s aggressive interest rate hike cycle this year, which has brought the fed funds rate to 3.78%.

On Thursday, the Bureau of Economic Analysis reported that the core personal consumption expenditures (PCE) price index rose 0.2% in October, below the estimate of 0.3%. The core index (which strips out volatile food and energy costs) increased 5% year over year, down from the 5.2% annual rate in September. That compares to the 40-year high of 5.4% last February. The S&P 500 reported year-over-year growth in earnings per share (EPS) of 2.4%, the lowest growth rate since Q3 2020.

70% of S&P 5000 companies reported actual EPS that exceeded estimates for Q3, below the five-year average of 77%.

The term “inflation” was mentioned at least once during the earnings conference calls of 398 S&P 500 companies from September 15 through November 28.

The energy sector reported the highest year-over-year Q3 earnings growth of all 11 sectors in the S&P 500 at 137%.

The energy sector reported the highest (year-over-year) revenue growth rate of all eleven sectors at 46.9%. Higher year-over-year oil prices contributed to the year-over-year improvement in revenues for this sector, as the average price of oil in Q3 2022 ($91.43) was 30% above the average price for oil in Q3 2021 ($70.52).

61% of S&P 500 companies provided negative EPS guidance for Q3, above the five-year average of 60%.

There was a 26% quarter-over-quarter decline in the number of S&P 500 companies citing the term “recession” on earnings calls for the third quarter (179) relative to the second quarter (242).

Corporate earnings have stayed aloft, but growth is decelerating. In fact, if you remove energy from the equation, the S&P 500 as a whole would come in negative for Q3 earnings growth, at -5.3%.

Jobs and wage growth suggest that consumers will continue spending, especially during the crucial holiday season. Adobe Analytics predicts that U.S. online holiday sales will reach $209.7 billion from Nov. 1 to Dec. 31, representing a year-over-year increase of 2.5%. That may seem like lackluster growth, but considering economic headwinds, it’s remarkably resilient.

But the strong employment picture also tells us that the Fed will be less inclined to make a dovish pivot when it meets this month, despite recently encouraging data that show inflation on a downward slope.

We’re approaching Christmas amid economic crosscurrents. We’ll see if the final month of 2022 will be naughty or nice for investors.

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John Persinos is the editorial director of Investing Daily. You can reach John at: mailbag@investingdaily.com

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