Investors Hate that Jerome Powell is Right Again

This morning’s jobs report for the month of June came in higher than economists’ expectations.

The report is just another sign that Jerome Powell and the Fed have been correct to not rush in and drop interest, something that investors have wanted to see happen since the beginning of the year.

The report showed that 206,000 jobs were created and that hourly earnings ticked higher by 0.3%.

Economists expected that between 185,000- 200,000 jobs were created in the month of June and that wages would rise by 0.3%.

Stock’s initially took a dip after the report but quickly rebounded.

Here's Why

Investors have been watching the monthly employment data closely for signs that the jobs market and wages were slowing as it could support a shift in the Fed’s interest rate policy.

Last month, non-farm payroll jobs showed that 272,000 jobs were created.  That compared to economists’ expectations of 175,000.  The higher jobs creation was also me with a higher than forecasted increase in wages.

Investors took the news in stride as the slightly inflationary data was influenced by seasonal job filling.  Since then, stocks have continued to their new all-time highs.

Earlier this week we heard the Fed’s thoughts on where interest rates are heading by way of the latest minutes from the May FOMC meeting.

The meeting minutes from June once again confirmed the message that we have heard from Fed Chairman Jerome Powell for more than six months.

Policy makers are still willing to sit on the sidelines when it comes to forecasting the first interest rate cut – something that the market expects to see happen at the November policy meeting.  Two weeks ago, data showed investors expected the Fed to initiate their first shift in policy by lowering rates in September.

Investors and consumers are clamoring for lower rates as it has the potential to stimulate the economy with lower mortgage rates and financing for large discretionary purchases.

Lower rates would also ease the costs associated with commercial real estate companies refinancing billions of dollars of loans that are at- or near-maturity.  Many believe that there is a looming threat of a collapse in the real estate industry without rates lowering soon.

Today’s jobs report is best described as another “Goldilocks.”  Not inflationary enough to cause the Fed to think about raising rates, but not cool enough for policy makers to consider changing their outlook.

For now, that Goldilocks scenario is likely to allow stocks to move higher next week ahead of the kick-off of earnings season.

Next week’s big economic data comes in the form of the government’s Consumer Price Index (CPI) and Producer Price Index (PPI) reports.

There reports will be more critical in confirming that inflation continues to slowly recede to avoid talk of the potential for higher rates to bring the market down from its lofty valuations.