Slowing Wages Gives Markets Higher Lows
The Current Conditions:
2023 started on a positive foot for equities globally. In its first week of trading, the S&P500 gained +1.5%, the Dow index gained +1.5%, and the Nasdaq +1%. Those gains were less than Europe and China where indexes rose anywhere from +3% to +10%. While the Fed minutes highlighted that the Fed doesn’t want to see financial conditions ease, they did last week as Friday’s BLS wage number came in less than expected and ISM Services sank into contraction levels.
The markets’ reaction was bad news is good news as it will slow the Federal Reserve’s interest rate increases down.
All maturities of treasury yields rallied materially Friday, and “real yields” (which control P/Es and stock valuations) dropped dramatically right as they had been approaching their late September highs. Here’s a chart of 2-year “Real yields, also known as TIPs yields.”
It’s hard not to see the inverse correlation this interest rate has had on the overall S&P500 throughout 2022. A lower trend in real yields would be a huge tailwind for stock markets, particularly international, growth, and cyclical stocks.
The economic data on Friday was less than cheery..which the stock markets cheered. This Wednesday’s “News or Noise release” will delve into last Friday’s BLS jobs number which was not as strong as it appeared nor as rosy as politicians and the mainstream media made it out to be.
The cliff notes on this coming YouTube video are almost all our country’s net job creation in the last 12-18 months has been part-time work from workers taking on 2nd and 3rd jobs to fight inflation.
These workers are most often subject to the hiring rule of “last hired, first fired”.
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Keeping you Connected to Your Money: 1st Half 2023 Outlook – The “Old Normal”
News or Noise:
Moving to a bi-monthly release
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