Stocks Downbeat to Kick Off 2023

Stocks turned lower Tuesday on the first trading day of 2023. The big talking points this week will be on the economic side as earnings will remain light.

Tesla Deliveries

Tesla plunged more than 12% Tuesday after the company’s deliveries missed it's forecasts, stoking further worries regarding waning demand for Tesla vehicles, as a possibly impending recession and rising rates mixed with an erratic and polarizing leader all spell trouble for the demand for its luxury vehicle.

Tesla delivered 405,278 automobiles against a forecast for 420,760. The company produced 439,701 cars, meaning 34,423 went undelivered.

This was a big red flag for investors as Tesla had always sold and delivered everything it had produced until recently. The company said undelivered vehicles rose as trends “continued to transition towards a more even regional mix of vehicle builds which again led to a further increase in cars in transit at the end of the quarter.”

Fed Minutes

The minutes from the Dec. 13 and 14 Fed meeting will be the biggest talking point this week for investors.

This will be an interesting follow-up to the Fed’s decision to hike rates by 50 basis points as it will provide investors with, hopefully, more clarity on what to expect from its policy pivot.

Leading into the pivot, Fed Chair Jerome Powell clarified some of its path forward, saying “the timing” of moderation is “far less significant” than the eventual terminal rate and length of time spent holding said rate.

Investors are hoping that the notes will help them better understand what is ahead with the “slower but higher” policy move.

December Jobs Report

The next big talking point this week will be Friday’s monthly jobs report for December.

Nonfarm payrolls are expected to have added 210,000 jobs following November’s 263,000 payroll jump. Meanwhile, the private sector is expected to have added 200,000 jobs during December following 221,000 the month before.

As recession talk continues to increase with the likes of The Big Short’s Michael Burry saying the US is in a recession by “any definition”, investors will be watching the labor market closely.

The labor market has been resilient and red hot in the face of rising inflation, and investors will hope that the effects of constrictive policy can be minimal. Investors will prefer slowing to halting or declining.

Manufacturing & Services Indices

Lastly, the December reports for the ISM Manufacturing and Non-Manufacturing reports are due Wednesday and Friday morning, respectively.

The manufacturing sector contracted in November, with the index coming in at a reading of 49.0 following October’s reading of 50.2. Economists expect manufacturing to dip further into contraction territory in December with a 48.5% reading.

Meanwhile, services expanded at a faster pace with a reading of 56.5 in November following October's reading of 54.4. Expectations are for services to expand at a slower pace of 55.0 in December.

While the expected outlook is for both to have worsened in December, the most important aspect will be for the Prices index. Manufacturing saw prices fall in November, while services saw prices rise at a slower pace.