Welcome to my latest video presentation for Mind Over Markets. Below is an edited transcript; the video provides additional details and displays several charts.

The new year started with a bang, as U.S. and international equities closed the first trading week of the year sharply higher. It was a welcome rally, after ending 2022 on a dismal note.

Can the momentum last? No one can say for sure, of course. It’s still early, and besides, trying to time the market is a fool’s game. But underlying indicators are auspicious.

That said, investors have been whipsawed by a mix of good news and bad news. Complicating the picture is the lens through which Wall Street interprets data. Good news can be seen as bad, and vice versa.

For example, in the early part of last week, stocks fell as data showed robust job openings and falling initial jobless claims. But later, stocks surged in the wake of a report that signaled wage growth is cooling. Until we get closer to economic equilibrium, this volatility is likely to continue.

Mr. Market’s changeable mood…

The Department of Labor reported last Thursday that In the week ending December 31, seasonally adjusted initial jobless claims hit 204,000, a decrease of 19,000 from the previous week’s revised level. The reading was hotter than the Federal Reserve wanted, because it showed that the tightening of monetary policy to fight inflation still has a way to go.

Last Friday, the Bureau of Labor Statistics (BLS) reported that total nonfarm payroll employment increased by 223,000 in December, and the unemployment rate last month fell to 3.5%. That reading also was stronger than desired by inflation fighters.

But the data came with a bright silver lining, and it propelled stocks higher. The BLS reported that for the month of December, average hourly earnings rose by 0.3%, less than the 0.4% consensus estimate.

Year-over-year average hourly earnings growth slowed, from 4.8% in November to 4.6% in December. Last month’s level is down from a peak of 5.6% in March.

For the past three months, wage growth has been running below 5%. The latest reading of 4.6% for December was the lowest since August 2021. Over the past three months, wage growth has run at an annualized pace of 4.1%.

In the fight against inflation, we’re seeing further good news in declining crude oil prices. Recession fears, slowing demand, and persistent COVID woes in China are weighing on oil prices.

The per-barrel prices for West Texas Intermediate (WTI), which is the U.S. benchmark, and Brent North Sea crude, on which international oils are priced, hover below $80 per barrel.

That’s a disinflationary trend. It’s notable that oil has been on a downward slope, despite the efforts of OPEC+ to curb production. It’s a reminder that the cartel has only so much power, and macroeconomic forces can overwhelm the policy of oil ministers.

Meanwhile, the Institute for Supply Management (ISM) reported last Wednesday that economic activity in the manufacturing sector contracted in December for the second straight month, following a 29-month period of growth.

ISM’s December Manufacturing Purchasing Managers’ Index (PMI) came in at 48.4%, 0.6 percentage point lower than the 49% posted in November and beneath the estimate of 48.5%.

That’s bad news, right? Nope. Wall Street was heartened, because it showed a slowing economy, which in turn dampens inflation. At the same time, the numbers didn’t reflect an economy that’s falling off a cliff.

We’re not exactly in a “Goldilocks” moment (not too hot, not too cold). That would be an overstatement. But this uneasy balance between growth and contraction is helping to stabilize asset prices.

Jobs growth is resilient, but wages are falling. Manufacturing activity is shrinking, but not signaling an outright recession. It’s the sort of backdrop that contributed to the fall last week in the benchmark 10-year U.S. Treasury yield, which rose throughout 2022.

Smackdown the vote!

During the dramatic series of votes last week for House Speaker, tempers flared and the floor almost broke out into fisticuffs.

Rep. Kevin McCarthy (R-CA) finally got the gavel after 15 rounds of voting, but only after making concessions to ultraconservatives that significantly weakened the speaker’s power.

Read This Story: What The Political Circus Means for Your Portfolio

Notably, McCarthy agreed to a demand to allow a single House member to call for a no-confidence vote in the speaker. His detractors in the GOP haven’t ruled out a motion to vacate him during this Congress. The Sword of Damocles now hangs over McCarthy’s head.

Governance will be difficult in 2023. However, don’t get spooked by the shenanigans in Washington. Wall Street often prefers political gridlock, because it lessens the chances of Congress passing legislation that hurts investors.

The week ahead…

Fourth-quarter 2022 earnings season is set to begin this week. The consensus estimate is that Q4 earnings will decline by 2.8% on a year-over-year basis.

As usual, the big banks will kick off the earnings festivities. Net interest income will probably come in strong, due to the Fed’s interest rate boosts. The operating results of financial institutions serve as an economic bellwether.

In the coming days, keep an eye on these economic reports: inflation expectations (Monday); NFIB small business index (Tuesday); consumer price index (CPI) and initial jobless claims (Thursday); and consumer sentiment (Friday).

After a terrible 2022, we probably face a more bullish 2023, with the economy slowing just enough to curb inflation, but not enough to wreck corporate profits and equity prices. The economy is downshifting, but not screeching to a halt.

The big news this week will be the latest CPI report, which is expected to show the further cooling of inflation.

Throughout 2022, defensive plays and inflation hedges dominated my trading advice. But in the coming new year, I think growth stocks will come back into vogue, especially oversold technology and small-cap stocks. Calibrate your portfolio accordingly.

PS: If you’re looking for further trading guidance in these uncertain times, consider our special report on seven macro predictions for 2023.

The product of painstaking research, our report steers you toward specific, under-the-radar picks in a range of sectors. To download your free copy, click here.

John Persinos is the editorial director of Investing Daily.

To subscribe to John’s video channel, click this icon: