Stock Market Crash Alert: Mark Your Calendars for Jan. 6

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The December jobs report is due Friday, the first major economic data release of the new year. Depending on the results, the report may set a brighter tone for 2023, or serve t0 continue 2022’s bleaker trends.

Tensions are high heading into the new year. 2022 was one of the worst years ever for the stock market, with most major indices falling upwards of 20%. Investors and analysts everywhere are hoping to turn the corner in 2023. As such, the importance of the December jobs report this week can’t be underplayed.

Interestingly, investors may be looking to see a general softening in the labor market. This would serve as evidence that the Federal Reserve’s inflation-reducing rate hikes last year are beginning to be felt in the economy, a promising sign that prices will ease.

On the flip side, if the jobs report comes out too strong, it could read as a sign that the Fed will continue to hike rates in 2023 in order to reinforce its deflationary agenda.

If you recall, the November jobs report (released in December) came in surprisingly solid, adding 263,000 nonfarm payrolls, which was well above expectations of 200,000. This reflected an unemployment rate of 3.7%, near its historic low. Unfortunately, though, this proved to be a bearish signal to investors. The S&P 500 and Nasdaq Composite each fell between. 0.1% and 0.2% following the report last month.

So, what are investors looking for now?

Stock Market Crash Looms Large on December Jobs Report

This time around, economists are looking for added jobs to decrease to 200,000. This would reflect the fact that the Federal Funds Rate hikes are beginning to tighten the economy — and, hopefully, lower inflation.

According to Sam Bullard, Senior Economist at Wells Fargo Corporate & Investment Banking, this would satisfy the slowed growth many analysts are hoping for.

“Secondary employment measures have been mixed, but continue to support the notion of positive monthly employment growth, albeit at a slowing pace […] We project the unemployment rate to remain steady at 3.7% for a third straight month, as job openings have pulled back from March’s peak which, in turn, has helped lead to a slight slowdown in the pace of hiring.”

With worsening unemployment, recession concerns will likely only grow. Recession fears ran hot for almost the entirety of 2022, despite relatively strong consumer spending, wage growth and unemployment. In 2023, it seems the rumors might manifest into reality. Many analysts predict a recession will hit the country at some point in the new year, in no small part due to the Fed’s tightening efforts.

Ed Yardeni, President of Yardeni Research, believes conditions this year will likely lead to a sort of “old normal.”

“Call it a soft landing, call it a rolling recession, a growth recession, whatever the case. It will be the most widely anticipated recession of all time […] It could be the start of a return to the ‘old normal’ before the financial crisis, when we had inflation and interest rates of more like 3% to 4% and the economy growing around 2%.”

This Friday’s jobs report will likely inform the Fed’s next rate hike decision in late January. The central bank has been steadily raising rates at its past meetings. Should unemployment prove too sticky, another rate hike may well be on the way.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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