Key wage inflation measure eases in Q4: don’t be ‘too bullish’ on stocks

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on Jan 31, 2023
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  • Employment cost index increased less than expected in Q4 of 2022.
  • Cetera's Gene Goldman shares his view on the equities market.
  • Benchmark S&P 500 index is currently up roughly 6.0% for the year.

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S&P 500 opened up on Tuesday after the Bureau of Labour Statistics confirmed that a key wage inflation measure was up less than expected in the final quarter of 2022.

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Avoid being too bullish on stocks

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Employment cost index, an indicator that the central bank closely follows increased 1.0% year-over-year in the fourth quarter versus a 1.1% gain expected and less than 1.2% in the previous quarter.

Still, Gene Goldman of Cetera recommends that investors avoid being overly bullish on the equities market. Speaking with CNBC’s Brian Sullivan this morning, he said:

Why we shouldn’t be too bullish? [Because] valuations are a little too high relative to current interest rate levels and stocks continue to struggle above the 200-day moving average for a sustained period.

For the year, the benchmark index is currently up about 6.0%.

Recession is not priced in

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Wage inflation data today marked the lowest quarterly gain in about a year. But Goldman is keeping cautious because the earnings weakness and fears of a recession are not priced into the U.S. stocks.

Gallup pole recently said 79% of Americans believe recession is coming. And data is there. Inverted yield curves, PMI, retail sales. It’s still not reflected. Earnings still need to rise another 5% to 10%. So, we’re a little concerned near term.

Nonetheless, he does not expect the S&P 500 to sink back to the October lows. Instead, Goldman says it will find a meaningful support around the 3,800 level.  

The U.S. Federal Reserve is expected to announce its 8th consecutive increase in interest rates this Thursday.

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