‘Old economy’ stocks were in the ascendency again last week, pushing the S&P 500 up to new highs. Materials, consumer staples, financials, utilities and industrials were all strong.
The stock market is ‘trading’ off Treasury yields, which fell sharply on Friday (down seven basis points to 1.29%, 10-year).
But equities ignored the very sharp decline in consumer sentiment, reported by the second reading for the University of Michigan survey.
The labour market data was encouraging last week. Another big rise in job openings (July, JOLTS report, see Wednesday’s commentary) was followed by a drop in initial jobless claims (down 12k to 375k), a third consecutive weekly decline. But wage pressures are beginning to surface. The Atlanta Fed median wage tracker posted the biggest rise (4.5% y/y) since March 2007.
The surge in IT investment will, it is assumed, help companies to control costs even as wages rise.
This after all, is the premise of the bull market stretching back to 2009: the next few months will provide an important test of this paradigm.
Summary
- Inflation numbers look benign
- But first signs of a pick-up in wages emerge
- Big test for bull market
