Friday, July 07, 2006

Market Thoughts

TGIF! Well, the markets didn't seem to like the employment news out today.  The number came in well under estimates at 121K and unemployment stayed at 4.6%, but with the labor market at full employment, wage growth showed up at .5% as employers have to raise salaries to compete for workers.  Since the Fed is fighting the fear of inflation, strong growth in wages is not what they want to see. 

Higher energy prices have kept a damper on the economy and moderated growth, as consumers have to reign in spending to deal with higher energy bills.  This is why inflation has been so mild.  This is why Starbucks missed their numbers.  Hey, if you had a few more bucks in your wallet, maybe you'd keep drinking the mochas everyday.  But people have to make spending choices.  Maybe with their wages on the rise, they'll go back to Starbucks.  Unless the Fed keeps raising rates, creates a recession, and puts folks out of work.  Not the case just yet.

Since I'm not a short-term trader I tend to ignore the daily squiggles and look at the bigger picture.  I think there is tons of gloom out there.  The numbers are backwards looking, and the Fed has raised rates to deal with their fear of inflation.  If they keep raising rates, I think we have a problem.  But right now I think we're still in an economic expansion and that earnings will be good.

JMHO, and I could be wrong...

Earnings season starts next week!

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