Another Strong Jobs Report Suggests Peak Rates Could Be Even Further Off

Another Strong Jobs Report Suggests Peak Rates Could Be Even Further Off
Theodora Lee Joseph, CFA

about 1 year ago1 min

The US labor market is showing few signs of slowing down, at least according to the latest jobs report. It added 263,000 new jobs in November, easily outpacing the 200,000 that economists saw coming. What’s more, even the recent string of massive tech-sector layoffs couldn’t break its stride: the unemployment rate held steady at a near-historical low of 3.7%. The jobs data has proved a puzzle for investors, reflecting a market that’s been remarkably resilient in the face of aggressive rate hikes from the Federal Reserve (the Fed).

Of course, this all has a huge bearing on stock markets. And that’s not least because a strong jobs report shows that the economy and demand are still robust, and that the Fed will have to continue its rate-hike trajectory if it wants towag tame inflation. The Fed’s already been one of the quickest and most aggressive central banks in raising rates this year. As you see in the chart above, it’s nearing the end of its rate-hiking cycle. (Well, at least based on current expectations). These so-called peak rate expectations could very well have to be revised upward if this hypersonic jobs market continues to drive wages and inflation higher.

Higher rates aren’t good for investors. See, stock markets tend not to rebound until investors believe that the economy is close to a peak in interest rates and inflation. And today’s strong labor report suggests the US might still be some distance from that. And while the same may be true for the UK and Europe, most of those negative expectations are largely “priced in”, with stock valuations for these two markets looking a lot more attractive.

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