Why a stock market obsessed with the Fed’s inflation fight should focus on Main Street jobs in 2023 – MarketWatch
Fortunes on Wall Street this year could hinge less on what’s happening to high-paid workers in San Francisco’s reeling technology sector and more on a familiar part of American life: the working class.
Investors wondering if it’s time to buy battered stocks have seen hopeful signs in U.S. costs of living receding from their highest level in 40 years. Bulls got another shot in the arm Friday after a robust jobs report for December also showed slowing wage growth.
The Dow Jones Industrial Average
DJIA,
+2.13%
booked a gain of 700 points, while the S&P 500 index
SPX,
+2.28%
and Nasdaq Composite
COMP,
+2.56%
snapped a four-week losing streak.
The problem? While the Fed has quickly raised interest rates since March, the central bank still needs to find a way to cool the economy, but not by too much, and an end to a vicious cycle where high wages feed painful levels of inflation, potentially for years to come.
“It’s still important to keep perspective,” said Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management, in a phone interview Friday. “Wages are still high.”
With that backdrop, she thinks unemployment needs to rise for the Fed to get back on a path to its 2% annual inflation goal, and that the U.S. will enter a mild recession.
“It’s way too early to claim victory.”
Tech isn’t the economy
Technology companies, a major source of pandemic stock-market gains, have switched to enduring the blight of layoffs.
Amazon.com Inc.
AMZN,
+3.56%
this week confirmed total cuts of 18,000, while Salesforce Inc.
CRM,
+3.06%
said it would reduce its staff by about 10%, adding to a barrage of pink slips across many of the biggest names in tech.
Read: Here are the companies in the layoffs spotlight: Amazon joins Salesforce, Intel, Google, HP, Cisco
But forces hammering the tech sector don’t paint a full picture of the labor market. Friday’s payroll report showed the U.S. economy added 223,000 new jobs in December, while the 3.5% unemployment rate matched its lowest level since 1969. Furthermore, hourly wage gains were modest, sparking hope that pay for workers might be leveling off, potentially allowing the broader economy to avert a recession.
A word of caution: as with …….