Stocks shot higher Friday as investors cheered the latest jobs report. Although data from the Labor Department showed that hiring remains strong, a lower-than-expected rise in wages suggests that the Federal Reserve's efforts to cool inflation with aggressive interest-rate hikes is working. This was the kind of silver lining that Wall Street has been looking for – and the stock market responded in kind.
Looking closer at the numbers from the December jobs report shows the U.S. added 223,000 jobs last month. Although this was the smallest gain in two years, it was well above what most economists were expecting. Additionally, the unemployment rate fell to 3.5% from 3.7%.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
At first glance, December's strong job creation wasn't very encouraging. After all, the Fed is intent on slowing the economy in order to tame fast-rising prices. What gave investors hope, however, were the wage growth figures. Specifically, average hourly earnings – a key measure of inflation tracked by the Fed – rose 0.3% month-over-month and 4.6% year-over-year. Both figures were lower than economists' average estimates, as well as the pace of wage growth seen in the November jobs report.
"This absolute level is still too high for Chairman Powell, who has remarked that wages are running too hot to be consistent with the Fed's 2% inflation mandate," says Daniel Berkowitz, senior investment officer for Prudent Management Associates. "With that said, the data is clearly moving in the right direction. All in all, today's jobs numbers offered a Goldilocks scenario, not too hot, not too cold – and on the heels of a 'just right' report, stocks are rallying."
Indeed, the Dow Jones Industrial Average jumped 2.1% to 33,630, the S&P 500 gained 2.3% to 3,895, and the Nasdaq Composite added 2.6% to 10,569.
Top Inflation Hedges
Today's wage growth data provided another encouraging read on inflation. But the really big update will come next Thursday morning with the release of the December consumer price index (CPI).
The past two CPI reports showed that consumer price growth moderated in October and November, and expectations are for it to have slowed further in December. That said, inflation remains high – and well above the Fed's target. Douglas Porter, chief economist at BMO Capital Markets, continues "to believe that underlying inflation will remain stickier than expected, even with this week's admittedly encouraging developments on a number of fronts."
With this in mind, investors would do well to continue including inflation hedges in their portfolios. As we've mentioned several times in this space, these hedges against rising prices can include healthcare and consumer staples stocks, which provide goods and services that people tend to buy no matter what. The best inflation-beating stocks are also certainly worth a closer look.
-
I missed the 2-Year IRMAA Rule. Now, my Medicare costs are skyrocketing. What are my options?A spike in income could result in costly IRMAA charges on your Medicare premiums. We ask financial planning experts for advice.
-
How to Build Your Financial Legacy Three Piggy Banks at a TimeA wealth adviser shares a childhood saving technique that taught him lessons of stewardship, generosity and responsibility and helped him answer the question we all need to answer to define our lives by impact rather than greed: 'What is this all for?'
-
July CPI Report Ignites a Risk-On Rally: Stock Market TodayMarket participants price out worst-case scenarios for tariffs and inflation and will now turn their attention to employment and growth.
-
July CPI Report Boosts Rate-Cut Odds: What the Experts SayThe July CPI report shows that tariffs are having a slight impact on inflation, though not enough to keep the Fed from cutting interest rates.
-
Stocks Slip Ahead of July CPI Report: Stock Market TodayThe latest inflation updates roll in this week and Wall Street is watching to see how much of an impact tariffs are having on cost pressures.
-
Nasdaq Ends the Week at a New High: Stock Market TodayThe S&P 500 came within a hair of a new high, while the Dow Jones Industrial Average still has yet to hit a fresh peak in 2025.
-
Stocks Swing Lower as Eli Lilly, Fortinet Spiral: Stock Market TodayThe main indexes finished well off their session highs after a disappointing batch of corporate earnings reports.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
Stocks Rally on Apple Strength: Stock Market TodayThe iPhone maker will boost its U.S. investment by $100 billion, which sent the Dow Jones stock soaring.
-
Rally Pauses for Hot Earnings, Cool Data: Stock Market TodayMarkets were mostly mixed Tuesday after decisive moves Friday and Monday.
