In this week’s message we stated the following on stocks and short-term risk based on this morning’s jobs report:

If the February jobs report shows another notable increase in wages and a steady to even lower unemployment rate, the stock market’s reaction will tell you what, in the immediate term, it has its sights on. That is, if the market tanks on strong employment news — or rallies on weak news — then clearly it remains dominated by a myopia that sees only the relationship between stock prices and interest rates, and is entirely blind to the relationship between stock prices and the prospects for their underlying companies’ earnings. If, on the other hand, it rallies on a strong report and sells (or drifts aimlessly) on a weak one, then we can say its vision is markedly improving.

Well, it was a really good jobs number, in terms of jobs (313k vs 200k expected), but wages… hmm…


While I’d love nothing more than to say that we’ve moved onto the last sentence in the above snippet —being that Dow futures jumped 200 points on the news— and that may indeed be the case, but it feels more like the porridge was just right for the market; not too hot, not too cold.


While we got the steady unemployment rate, there was no notable increase in wages (see first sentence above): in fact, wage growth came in below expectations.


So, no, we’re thinking we remain in that stock market Lalaland, or Goldilocksville, if you will, where it (participants in the aggregate) see nothing but steady growth and very low inflation/interest rates as far as the eye can see!


Now, while we’re not at all in the camp that sees wild inflation/super high interest rates anywhere in the foreseeable future, we are, however, looking at lots of other data that suggest prices are indeed accelerating at a healthier clip than the market may yet be pricing in. 

Bottom line: While our analysis of the data has us very constructive on stocks going forward, today’s initial celebration on a disappointing wage/favorable inflation number tells us to expect more of the kind of volatility we’ve seen of late going forward — as economic reality sets in. Not at all a bad scenario, by the way, for us patient long-term investors!


As for other markets — gold (down), bond yields (up), the dollar (up) — their initial reactions more accurately reflect our thesis.


Of course we’re talking several markets’ initial reactions to the jobs report, the trading day’s still very young, in fact it hasn’t even officially started yet.


Have a nice weekend!
Marty