Stock Investors: Two Economic Data Points You Need to Watch For
Good news has emerged out of the noise and mixed - or even unclear - economic data.
There are two data points that could emerge from wage growth investors need to consider: Inflation and interest rate hikes, or profit margin compression if there's no inflation.
"Any data that move expectations for the Fed [Federal Reserve], I think you want to keep a very close eye on," said Tendayi Kapfidze, chief economist at LendingTree .
"One example, I think, is the wage data that we just saw on Friday." Wages came in at a 3.4% growth rate on Friday, a strong increase relative to the same number in the past period of this economic expansion.
"There's two possibilities that come from this wage-growth data," Kapfidze said.
If the Federal Reserve has to lift interest rates because wage growth lifted demand for goods and services, thereby moving inflation upward, stock investors need to beware of monetary tightening.
"You may start to see the Fed pull away from its most recent kind of dovish tilt," Kapfidze said.
That would put some pressure on the stock market.
The S&P 500 is up 10.2% year-to-date, and it's still early in the year.
Why Jim Cramer thinks the 10 year anniversary of the bull run is "phony." The second risk is that any wage growth that doesn't push consumer prices higher would simply compress profit margins, as companies pay more to their workers without enjoying the benefits of price increase.
This could also hurt the stock market as companies would see slimmer than expected earnings.
Investors need to be vigilant.
Which stocks to short and which to go long on.