The major stock averages bounced back Friday, despite the release of a stronger-than-expected U.S. jobs report and another jump in Treasury yields. Investors initially dumped stocks and bond rates spiked after the Labor Department reported the U.S. economy added 336,000 jobs in September, nearly double the consensus. But stocks recovered as bond yields leveled out through the day. It was enough to put both the S & P 500 in the black for the week, breaking the broad market index’s four-week streak of losses. The Nasdaq rose 1.2% and the Dow slid slightly for the week. Why the reversal? We believe one key data point in the jobs report was (at first) undervalued: Wages increased less than expected. In our view, strong hiring with moderating wage growth could be nirvana for the economy and stocks. Accelerating wage growth has been one of the stickiest problems for the Federal Reserve in its fight against inflation. If it can come down while still adding jobs, we may have that soft landing — or no landing — for the economy. @CL.1 YTD mountain WTI year to date performance Another positive: Oil prices have cratered in October after surging more than 28% in the third quarter. Even with a modest bounce Friday, U.S. crude prices fell nearly 9% this week — their worst weekly performance since March. That’s important for two reasons. First, energy prices compete with discretionary dollars. The more consumers spend on filling up their cars with gas, the less they have to spend at the mall. Second, energy costs impact inflation (even if the Fed relies primarily on the core PCE index because it strips out energy and food prices). After all, energy is a major input cost for companies. If those companies want to protect profits when oil prices are rising, they will pass those costs to the consumer. So, the job market remains strong, wage inflation is slowing and energy prices are coming back down to Earth. Interest rates are still high, but the speed of change matters more…
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