March Strong Employment could mean trouble
According to the government report released Friday, the U.S. economy added 180,000 jobs in March. The number came in above Wall St. expectation. This is great news for the overall economy as it suggests the economy is still growing despite the lackluster housing market. One thing is certain, this economy is resilient. While this is good news, the stock market could view this as a negative Monday morning.
The strong employment report lessens the chances the Feds will cut short term interest rate. For those investors that have been hoping for an interest rate cut, this strong employment does not help their cause. The stronger than expected employment could also raise inflationary concern, which could result in a market correction.
Couple of important points from this employment report that we wish to point out. While it is great to see people being able to find work, this essentially means corporations will face increased wage pressure. As evidenced by this report, the average hourly wage rose slightly. It all boils down to the bottom line for business; the more they must pay workers, the lower the net profit. To offset this increase in expense, companies will typically raise the prices they charge for goods and services. While the worker’s average pay has gone up, the price of goods and services will too, essentially erasing any economical gains. This in turn reduces the value of our money. Inflation is a major concern for the government. In order to keep inflation at bay, the Feds has only one main weapon, which is to increase interest rate. A decision to tighten would kill this bull market.
We would like to encourage everyone to be careful as the recent run up in the market could be a sign a correction is near. We are only a couple of hundred points from the DOW’s all time high. As always, take profit whenever possible. Knowing when to sell is critical as knowing when to buy.