After hitting an all-time high on January 26, the S&P 500 Index declined into correction territory. As usual, the business media focused on the most recent data point—which in this case was wage inflation as depicted by the U.S. Bureau of Labor Statistics’ February 2 report—and rushed to create a “story” from it.
The story isn’t really worth much comment, in our view, as there’s no real correlation between a single wage data point, or for that matter, any single data point, and the ultimate direction of the stock market. The report depicted wages increasing 2.9% year-over-year in January versus 2.7% in December and the 2.5% average rate increase in 2017. The story was that investors suddenly became anxious about robust economic growth, higher inflation, and interest rates. Wasn’t it roughly two years ago that the oft-repeated news story was that we were all supposed to be worried about economic stagnation, including wages that had failed to increase for years? And, further, that the equity rally from the lows of 2009 was a quantitative easing and central bank mirage that would end?
What in fact has happened in the last year and a half is we’ve had a much stronger than expected economy, continued low inflation and interest rates, and a strong continuation of the bull market.