‘As good as it gets’: The stock market’s best-case scenario is playing out on Friday

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  • Wage growth in February was less than economists expected, a report from the Bureau of Labor Statistics showed Friday.
  • That alleviated a pressing concern for US stock investors and resulted in an immediate spike higher in equity futures, which carried into regular trading.
  • The market’s snap reaction shows just how seriously traders take data that could end up shaping the Federal Reserve’s monetary-tightening schedule.
  • Watch the market trade in real time here.

Investors were on edge heading into Friday’s US jobs report, bracing for the worst as fears swirled around speculation of inflationary pressures.

Of particular concern was wage growth, which had accelerated in recent months, leading to worries over the prospect of quicker monetary tightening from the Federal Reserve.

Those fears were put to rest Friday — at least momentarily — as the Bureau of Labor Statistics said average hourly earnings increased just 2.6% from a year earlier, with the previous month’s estimate revised slightly lower to 2.8%.

With their biggest worry eliminated, traders were able to focus on a blockbuster headline number of 313,000 jobs added in February. They were also most likely emboldened by the unemployment rate, which sat unchanged at 4.1%, the lowest since December 2000.

Major indexes wasted no time rising as futures contracts spiked following the 8:30 a.m. ET data release. The benchmark S&P 500 climbed as much as 1.3%, while the Dow Jones industrial average surged more than 1.4%.

Leading the way higher in the S&P 500 were financial, energy, and industrial stocks, with each sector boasting gains of more than 1.7% as of mid-day. On a single-stock basis, Alexion Pharmaceuticals, Wynn Resorts, Lam Research, and Helmerich & Payne were the biggest winners, each adding at least 4.1%.

The report was, in many ways, the best-case scenario for US stocks. Traders were clearly encouraged by the bullish combination of slower-than-expected wage growth and otherwise strong economic data. The data fell into a sweet spot of sorts for investors — the economy isn’t overheating to an extent that would make the Fed more hawkish, but it’s also growing fast enough to suggest strong overall macroeconomic conditions. Hence the market’s strong move in early trading.

The employment report was “about as good as it gets from the market’s perspective: very strong job growth and very restrained wage growth,” David Donabedian, chief investment officer of CIBC Atlantic Trust said. “We continue to expect the strongest year of economic growth since 2005.”

The suppression of inflationary fears will now allow traders to focus on what has historically been the biggest driver of continued stock gains: earnings growth. The successful installment of sweeping corporate tax cuts spurred a glut of upward adjustments to profit forecasts, which many Wall Street strategists expect to underpin further stock market gains.

Marko Kolanovic, JPMorgan’s global head of quantitative and derivatives strategy, is firmly in that camp. In a client note on Friday, he argued concerns over inflation were overblown.

“Inflation is normalizing but unlikely to see a dramatic uptick, and the Fed will continue to tighten policy but remain accommodative,” he said. “Our macro views remain constructive.”

SEE ALSO: The former Target manager who made millions in a trade that just blew up wants you to know he’s doing just fine

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