S&P 500 opened up on Tuesday after the Bureau of Labour Statistics confirmed that a key wage inflation measure was up less than expected in the final quarter of 2022.
Avoid being too bullish on stocks
Employment cost index, an indicator that the central bank closely follows increased 1.0% year-over-year in the fourth quarter versus a 1.1% gain expected and less than 1.2% in the previous quarter.
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Still, Gene Goldman of Cetera recommends that investors avoid being overly bullish on the equities market. Speaking with CNBC’s Brian Sullivan this morning, he said:
Why we shouldn’t be too bullish? [Because] valuations are a little too high relative to current interest rate levels and stocks continue to struggle above the 200-day moving average for a sustained period.
For the year, the benchmark index is currently up about 6.0%.
Recession is not priced in
Wage inflation data today marked the lowest quarterly gain in about a year. But Goldman is keeping cautious because the earnings weakness and fears of a recession are not priced into the U.S. stocks.
Gallup pole recently said 79% of Americans believe recession is coming. And data is there. Inverted yield curves, PMI, retail sales. It’s still not reflected. Earnings still need to rise another 5% to 10%. So, we’re a little concerned near term.
Nonetheless, he does not expect the S&P 500 to sink back to the October lows. Instead, Goldman says it will find a meaningful support around the 3,800 level.
The U.S. Federal Reserve is expected to announce its 8th consecutive increase in interest rates this Thursday.