Report | Market Turbulence for February 7, 2018
The strong employment report last week set off a chain of events that have roiled markets. Through the noise, an important signal could be emerging. As the labor market tightens wage growth is accelerating which historically leads to faster inflation. In turn, faster inflation leads to higher rates. The equity markets appear to have been spooked by both the wage growth figure and higher rates, both of which would likely reduce margins, triggering a sell-off in the equity market. Some investors rotated out of equities and into bonds, pulling bond yields back from recent highs. But interest rates have continued their upward climb despite this recent pullback. Wage growth and inflation were firming even before the impact of tax cuts which should boost the economy in the short term. If the economy accelerates as we anticipate, Ryan Severino says stronger wage growth, inflation, and higher interest rates could lie ahead in 2018.
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