Save the Crocodile Tears

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The U.S. economy added 200K jobs in January, more than expected and a robust start to 2018 after a strong 2017 which averaged 181K jobs per month. But the big story is long-anticipated wage gains.  Worker pay grew at the fastest rate since 2009, up .34% for the month and 2.9% for the year. In employment news, the 10 year UST yield surged above 2.8%, causing the yield curve to steepen. As a result, the market turned south.  Wait a minute.  Why the crocodile tears? Over the last six months the biggest investor concerns have been a flattening of the yield curve, a stagnant economy, and lack of wage gains. Economic growth and higher interest rates go hand in hand. Investors should want higher rates. However, investors seem to be worried about the pace of the yield upticks and the potential for the Fed to get more aggressive. Meanwhile, earnings growth rates for Q42017 have been moved up to 14% and Q12018 estimates have been revised up to 16.7%. Top line revenues have also been steadily moving up. These earnings are the backbone of the market so maybe worried investors should take the day off and worry about their Super Bowl snack lineup instead.

Please view the monthly non-farms payroll report on page 63 of the Global Perspectives™ Book.

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