Yesterday the stock and bond markets sold off because the employment data was better than expected. Yet today, the stock market rallied on strong employment data.
So what gives? First, let’s recap what happened today.
The December nonfarm payrolls came in at 223,000, well above the estimated 200,000. Additionally, the unemployment rate fell by 0.2% to 3.5%. That, combined with ADP employment, jobless claims, and JOLTs data from the last two days, show a historically strong labor market. 💪
But the reason the stocks and bonds reversed course today and rose on the news was because of the wage data. December’s data showed average hourly earnings rose 4.6% YoY, which was well below the 5% estimated.
This is a big deal because rising wages remain a key factor in why inflation is so elevated. So for the Fed (and the market), a slowdown in this growth is a reason to celebrate. Because the sooner inflation slows down, the sooner the Fed can stop being so aggressively tight with its policy.
And given the lack of good news on the inflation front, the market will take what it can get. 🤷
So while slowing wage growth is sad for workers, it’s actually a positive for the market. Unfortunately, what’s good news for the economy remains bad news for the Fed/market, and vice versa.
We know it doesn’t make much sense. And we can explain more next time an inflation print comes out. But for now, let’s just pour one out this weekend for all of our wages that could’ve been. 🍺