Following Friday’s big 1.8% upswing on the Dow index — marking the first close north of 25K so far this month — which came after a stellar non-farm payroll survey that brought 313K new jobs in February with barely any wage growth, these “Goldilocks” conditions look to continue into this week. With little on the economic docket today, and no headline headwinds from across the globe, there appears to be nothing getting in the way of this storybook scenario, near-term.
The Nasdaq and S&P 500 also closed up 1.8% and 1.7%, respectively (with the Nasdaq cracking a fresh all-time high), meaning market gains have not been merely contained to a few blue-chip stocks. That Main Street may find themselves a tad at odds with the low wage growth in such a tight labor market is immaterial to the markets; in fact, wage growth trickling up is a relief for investors wary of four interest rate hikes from the Fed this year instead of the three already more or less priced in.
This is not to say analysts will be resting on these low-inflation conditions; tomorrow we see fresh numbers from the Consumer Price Index (CPI) and Wednesday will bring the latest Producer Price Index (PPI). Currently, both inflation metrics look to be at most just half what these figures showed in January — 0.2% are estimated for both, compared to the previous month’s 0.5% and 0.4%, respectively. If they were to come in as-expected, we can look for even further near-term gains in the market (assuming they are the lead economic narratives for the first half of the week).
This brings up an important point about market volatility we’ve seen thus far into 2018: strong nonfarm payrolls in January were joined by a relative spike in wage growth averages — 0.3% in back-to-back months and getting closer to 3% year over year. This, plus the aforementioned hotter-than-expected CPI and PPI figures, generated lots of market volatility off the all-time market highs we’d seen in early 2018 trading. This time around, with even better headline jobs numbers, we saw market appreciation precisely because the wage growth figures cooled. We shall see if this continues Tuesday and Wednesday.
Eventually, we will see wage growth ratchet up and inflation metrics compel the Fed to hike interest rates. (Next week’s Fed meeting is already considered a no-brainer quarter-point hike.) How far and how fast will be what market participants grapple with. For now, enjoy the porridge.