Stocks Rally on Hopes Inflation Will Slow
The U.S. Bureau of Labor Statistics reported another respectable employment number on Friday, illustrating that modest economic growth and a still-high number of job openings are boosting payrolls.
But it was a smaller-than-forecast rise in wages that caught the attention of investors, and stocks rallied.
First, nonfarm payrolls grew by 223,000 in December, and the unemployment rate fell to 3.5% in December from 3.6% in November. The jobless rate hasn’t strayed above the narrow range of 3.5% to 3.7% since March.
Payroll growth is moderating but remains solid. That’s not surprising given the high number of job openings, which makes finding a job easier.
As the chief economist for ADP pointed out last week, “The labor market is strong but fragmented, with hiring varying sharply by industry and business size. Business segments that hired aggressively in the first half of 2022 have slowed hiring and, in some cases, cut jobs in the last month of the year.”
So, some folks are doing well. Others, however, aren’t as positive.
Let’s turn to the wage component, which sparked the big rally on Friday.
Average hourly earnings rose by less than 0.3% in December, and there were significant downward revisions to October and November.
Here’s where things get tricky. Investors view economic data through a very narrow lens. They celebrated the slowdown in wage growth because smaller wage hikes put less upward pressure on inflation and could eventually reduce the need for Fed rate hikes.
Investors are rooting for a continued slowdown in wage growth and a loosening in the tight labor market but not an outright recession, which would hamper corporate profits.
Wages are still rising too quickly for the Fed’s comfort and aren’t compatible with its 2% annual inflation goal.
Workers, however, benefit from higher wages, as many have not kept pace with the spike in prices.
If you have any questions or would like to discuss any other matters, please let me know.
Bottom Line
It’s just one report. Just as November’s wage data was too hot for investors, the downward revisions in December may or may not hold.
Still, shorter-term investors liked what they saw. Progress for investors occurs in inches, not yards, and stocks finished the week on an up note.
Please let me know if you have questions or would like to discuss any other matters.
If you have any questions or would like to discuss any other matters, please let me know.
Clark S. Bellin, CIMA®, CPWA®, CEPA
President & Financial Advisor, Bellwether Wealth
402-476-8844 cbellin@bellww.com
All items discussed in this report are for informational purposes only, are not advice of any kind, and are not intended as a solicitation to buy, hold, or sell any securities. Nothing contained herein constitutes tax, legal, insurance, or investment advice. Please consult the appropriate professional regarding your individual circumstance.
Stocks and bonds and commodities are not FDIC insured and can fall in value, and any investment information, securities and commodities mentioned in this report may not be suitable for everyone.
U.S. Treasury bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.
Past performance is not a guarantee of future results.
Different investments involve different degrees of risk, and there can be no assurance that the future performance of any investment, security, commodity or investment strategy that is referenced will be profitable or be suitable for your portfolio.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.
The information contained is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
Before making any investments or making any type of investment decision, please consult with your financial advisor and determine how a security may fit into your investment portfolio, how a decision may affect your financial position and how it may impact your financial goals.
All opinions are subject to change without notice in response to changing market and/or economic conditions.
1 The Dow Jones Industrial Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2 The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4 The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5 CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6 CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.
