Unemployment bouys earnings?
Weekly markret view from LMK Wealth Management
Markets shook off losses last week and ended with strong weekly gains on the back of a positive January jobs report. For the week, the S&P 500 gained 3.03%, the Dow rose 3.84%, and the Nasdaq grew 2.36%.
January's monthly Employment Situation report showed that the economy gained 257,000 new jobs last month. Though the unemployment rate rose to 5.7%, it went up for the right reasons as Americans rejoined the labor force and began searching for jobs again. Best of all, average earnings grew 0.5%; since economists have been worrying about the slow pace of wage growth in the recovery, a jump in earnings is good news for the economy.
Though wages went up, consumer spending in December dropped to its lowest level in five years as Americans cut spending and used extra gas money to boost their savings. Higher incomes, lower prices at the pump, and falling inflation are giving American households a much-needed boost in spending power this year. Though the drop in consumer spending could hit Q4 economic growth numbers, the underlying factors set the stage for a strong 2015 for American consumers.
Stocks lost a little steam on Friday due to growing concern over a standoff between Greece's new anti-austerity government and Eurozone leaders. Greek leaders are seeking to tear up the agreements signed by the previous government in favor of debt forgiveness from the EU. However, the message from EU leaders to Greece is clear: Uphold your financial commitments and stick to the plan.
Though Greek voters are unequivocally tired of painful austerity cuts, Greece still depends on EU money, and its new leaders must tread carefully. Citing concern about how a liquidity crunch would affect Greece's ability to repay debts, Standard and Poor's downgraded Greek sovereign debt from B to B-.
What will the outcome of the showdown be? Hard to know at this stage, but the conclusion will likely affect how future negotiations with Spain, France, and Italy play out. Looking ahead, though the week ahead is light on economic reports, analysts will be closely monitoring the January retail sales report to see how Americans are spending. The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) that comes out Tuesday will also give some more insight into the overall health of the jobs recovery.
Positive data could renew focus on the Federal Reserve and a possible interest rate hike this year.
- Tuesday: JOLTS
- Wednesday: EIA Petroleum Status Report, Treasury Budget
- Thursday: Jobless Claims, Retail Sales, Business Inventories
- Friday: Import and Export Prices, Consumer Sentiment