Goldman Sachs reported that the real market impact will be from Friday’s jobs report, which contained better than expected increase in wages. The firm stated that this “inflationary trend” should cause certain stocks to outperform into the New Year.
“While investors focus on the election, stocks focus on rising wages and expected inflation,” Goldman Sachs’ David Kostin wrote to clients Friday. “Investors’ other focus has been the 3Q earnings season, which saw more frequent beats than usual but also negative management commentary and subsequent downward EPS revisions. In particular, companies highlighted the margin risk from higher wages.”
October’s average hourly earnings had a 2.8 percent annualized increase, the biggest rise in seven years, according to the Labor Department. Kostin claimed that a basket of companies with low labor costs have outperformed the basket of high labor cost by 7 percentage points since June. “Rising inflation support the outperformance of cyclical sectors over stocks with bond-like qualities [such as consumers staples],” he said.