Wage growth could slow down Fed

Last week's economic data were mostly positive, and that pushed most major stock market indexes higher.

On Friday, February 3rd, the January jobs report showed the U.S. economy added 227,000 new jobs - well above expectations of 180,000. This indicates the momentum in the job market is still strong. The unemployment rate increased from 4.7% to 4.8%, but it did so mostly because there were more people looking for work, and that is a good thing. Wages (how much you’re getting paid) only increased 0.1% for the month, pushing the year-over-year increase in wages to 2.5%. This lower-than-expected wage growth may allow the Federal Reserve, our nation’s central bank, to raise interest rates slowly, which is the view at Simply Money Advisors. We believe the Federal Reserve will raise interest rates twice in 2017; many economists expect three increases. Not surprisingly, the Federal Reserve kept interest rates unchanged at their meeting on February 1st. They also did not provide any guidance as to the timing of their next increase. While it's possible they raise interest rates at their May meeting, we believe the more likely occurrence will be in June.

Earnings season is a little more than half over, and corporations on average are reporting solid earnings growth of 6% and sales growth of 4% compared to the prior year. This includes Apple announcing better-than-expected earnings due to selling a record 78 million iPhones in the final three months of 2016. Some of the major companies reporting earnings this week include GM, Disney, and Coca Cola.

The Simply Money Point

While we won't be surprised to see market turbulence pick up in the short run, Simply Money Advisors is optimistic in the longer run. Historically, when the economy is growing and companies are reporting growing profits, stocks tend to perform well.

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