When trading financial assets for quick gains, every little blip on the radar feels like a monumental event. Having to flip between multiple charts and news scanners can be exhausting, especially in this current market environment where the market’s signals are confusing.
I’ve consistently outperformed by just sticking to my principles, viewing the big picture, and letting the data guide me instead of getting caught up in the constant noise. After all, it’s hard to lose over the long run when you’re taking inspiration from the likes of Warren Buffett, Charlie Munger, Peter Lynch, Howard Marks, and other legends.
Following in their footprints is a recipe for success, but only if you’re willing to expand your knowledge and understand exactly why you own what you own. You’re definitely heading into problem territory if you can’t explain it on one side of an index card or don’t even know why you bought or sold something.
This is particularly true when the markets whipsaw back and forth like they’ve been doing for a while now. This is happening because there’s information overload and the data points don’t all point in the same direction.
First of all, the high level of job openings in March seems to indicate a strong U.S. labor market. On the other hand, the number of job openings is in decline having gone from 8.8 million in February to 8.5 million in March. That’s the lowest reading since February 2021 and is not a good sign for the economy.
However, compensation costs – also known as wage growth – increased 1.2% in the first quarter of 2024. That’s higher than the prior quarter’s 1% increase, and it also came in above the 0.9% wage growth that economists had predicted.
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In this bizarre, upside down market, good news is sometimes construed as bad news. Wage growth hasn’t kept up with inflation for the American middle class in decades, so a bump in wage growth should be heralded as good news.
In the financial markets, though, fear of the Fed is often stronger than hope of a middle-class recovery. To quote Capital Economics chief North America economist Paul Ashworth, “The persistence of wage growth is another reason for the Fed to take its time on rate cuts.”
That’s because when companies pay higher wages, they’re likely to pass those costs to consumers in the form of higher product and service prices, which leads to higher inflation. Wells Fargo senior economist Sarah House explains that the seemingly positive wage growth print is “yet another data point that suggests the inflation slowdown that began this time last year stalled out in the first quarter of 2024.”
This is a textbook example of the huge difference between Wall Street and Main Street. Middle-class American workers getting raises to keep up with inflation isn’t viewed as a good thing since corporations view it as a burdensome expenditure. Mega-cap stock investors view wage growth as negative as well since higher wages will weigh on corporations’ bottom lines.
Plus, wage growth isn’t what Federal Reserve Chairman Jerome Powell wants to see. His objective isn’t to enable prosperity for American workers. Instead, Powell will hold on to his 2% inflation target even if there’s massive collateral damage to the middle class.
We’ve seen this in action during the past several years as the Fed’s relentless series of interest rate hikes led to mortgage interest rates of 7%, 7.5%, and even 8%. Additionally, home prices in February rose 6.4% year-over-year, the fastest rate of increase since November 2022.
Thus, the American dream of homeownership has become impossible for legions of millennials whose parents and grandparents expected them to be on their second home by now. Even so, the early May Federal Reserve meeting only reinforced Powell’s vision of 2% inflation at all costs.
The Fed’s statement after the committee opted not to cut interest rates again warned that it won’t “reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.” Powell gave large-cap stock traders some hope by saying, “It is unlikely the next policy move will be a hike.”
It’s hard to make sense of the mixed signals, and trying to predict exact outcomes for the immediate term is a fool’s errand. Thankfully, I’ve got a diversified portfolio that benefits in the long term from the government’s print-and-spend policy and the dollar’s inevitable debasement. The whipsaws and Fed’s stubbornness might frustrate short-term traders, but they can’t derail my path to wealth and prosperity.
Kenneth Ameduri
Chief Editor, CrushTheStreet.com
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