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One bad number in the December jobs report hints the Federal Reserve will keep fueling the stock market

Brian Sozzi

U.S. wage growth continues to suck. While that is bad news for the working stiff, it’s probably continued amazing news for those invested in the stock market as it will keep interest rates very low.

And as we all know, the Federal Reserve’s three interest rate cuts in 2019 and thinly veiled promises to stay away from rate hikes served as gas to the 10-year plus bull market last year. On Friday, the Labor Department reported that wage growth in December slowed to a year-over-year rate of 2.9% from 3.1%. That marks the slowest growth rate in wages since July 2018, according to Bank of America Global Research.

What’s more, the workweek came in at 34.3 versus Wall Street estimates for 34.4. The length of the average workweek has cooled for three straight months, points out Bleakley Advisory Group chief investment officer Peter Bookvar.

With no inflation in sight as seen through the prism of hourly wages — a measure the Jerome Powell-led Fed has said is being closely watched for future policy action — the monetary policy body is very likely to sustain its low interest rate policy, this year most strategists said. In fact, considering ongoing weakness in various manufacturing reports and the lackluster December jobs report pros believe the Fed could be poised to cut interest rates by the middle of the year.

Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, Wednesday, Oct. 30, 2019. The Federal Reserve cut rates for the third time this year. (AP Photo/Susan Walsh)

“Our baseline view is that we won’t see action [from the Fed] immediately,” said Aberdeen Standard Investments North America head of equities Ralph Bassett on Yahoo Finance’s The First Trade. If anything, Bassett said, the December jobs report gives the Fed “ammunition” to slash interest rates later in the year to goose economic growth.

“I do think it [the buy the dip mentality of investors] will stay intact. It’s pretty close to a teflon market, but keep in mind that is what the Fed has created by really communicating in I think very, very clear terms,” added Invesco chief global market strategist Kristina Hooper.

Not everything was a dud in the latest read on the job market, however.

The U.S. economy did create 145,000 jobs in the month (15,000 below consensus) despite uncertainty swirling around trade conditions with China. Meanwhile, the under-employment rate fell to 6.7%, the lowest level since 1994, noted Academy Securities strategist Peter Tchir.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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