It's Market Deja Vu: Jobs Beat, Wages Miss, and Stocks Rally

(Bloomberg) -- It’s a familiar sequence: Payrolls beat estimates, wages miss, and stocks rally. Everyone can relax, the “Goldilocks” scenario is again alive and well in the U.S. economy.

The S&P 500 Index is cruising toward a 3 percent weekly advance, helped Friday by the same labor department data that last month sparked the worst equity meltdown in two years. This time round, though, the figures showed employers added the most workers since mid-2016 and wage gains cooled; and that’s adding up to a rosy outlook for stocks.

The inflation fears stoked by last month’s strong wage numbers may have been overdone, so the story goes. It’s breathed new life into 2017’s narrative of an economy that’s not too hot and not too cold, suggesting the Federal Reserve will have the leeway to increase interest rates at a pace that equity traders can stomach.

It's Market Deja Vu: Jobs Beat, Wages Miss, and Stocks Rally

The report “appears to have delivered the data that most observers would have wanted, with a strong overall set of data ‘walking back’ last month’s spike in average hourly earnings,” said Michael Shaoul, chief executive officer of Marketfield Asset Management.

The U.S. added 313,000 jobs in February, labor department data showed Friday, beating the estimate of 205,000. Wage data came in low, though, with average hourly earnings only increasing 2.6 percent from a year earlier, compared with calls for 2.8 percent.

We’ve been here before. Step back to Dec. 8, when payrolls data for November hit the wire. The U.S. economy hired 228,000 workers, more than forecast, and wages came in softer than expected. The S&P 500 gained 0.6 percent that Friday, pushing the week’s action into positive territory.

That’s a stark contrast with last month. Feb. 2 was ground zero for stocks, kicking off a series of declines that would eventually lead to the first 10 percent correction in two years. That jobs report showed wages jumped 2.9 percent from a year prior, higher than estimates, and investors and economists started to wonder if this was a long-awaited sign that inflation was becoming a threat.

“There was a growing fear the Fed was behind the curve when it came to its inflation outlook,” Mark Heppenstall, chief investment officer of Penn Mutual Asset Management, said by phone. “Today’s number seems to suggest that maybe the past two month’s wage gains have moderated some and will allow the Fed to tighten on their pace, not the market’s pace.”

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