This morning, we received December’s official jobs report. And while it likely wasn’t good enough to save the stock market from its current swoon, it does support the notion that stocks will ultimately power higher in 2024.
The stock market is off to a rough start this year. There’s no sugarcoating it. After a seemingly nonstop rally during the last two months of 2023, stocks are struggling here in early 2024. For example, the Nasdaq Composite has now dropped for five straight days. That marks its longest losing streak since October 2022.
But we believe this selloff is just a technical reset after the market’s feverish rally in late 2023.
Indeed, stocks absolutely soared in November and December. According to our analysis, it was one of the sharpest stock rallies on record.
But stocks don’t go up in straight lines – not even in bull markets. And after such a frenetic rally, it is only natural, even healthy for stocks to cool off and regroup.
That’s what they’re doing right now.
Importantly, this “cooling off” period will end soon. When it does, stocks will resume the rally they’ve been on for the past 12 months.
And that’s exactly what today’s jobs report suggests.
What the Jobs Report Implies
According to the latest payroll numbers, the U.S. economy is in very good shape.
In December, the economy added 216,000 jobs, above expectations for 175,000 new jobs and up from the 173,000 jobs created in November. Importantly, after slowing consistently and rapidly throughout 2021 and ‘22, job growth has stabilized around ~200,000 new jobs per month since summer 2023.
In other words – for the first time since the COVID pandemic emerged – the labor market is stable.
And of course, the labor market is the bedrock of the U.S. economy. When consumers have jobs, they have incomes and tend to spend. And when they spend, the economy keeps growing. After all, consumer spending drives 70% of U.S. GDP.
That is especially true when income growth is outpacing inflation…
Which was not the case throughout 2021 and ‘22. At that time, consumers were getting crushed by inflation. Sure, wages were rising by 5%. But inflation was still running at 6%, 7%, 8%, even 9% during that period.
Real wage growth was negative.
But that has suddenly and dramatically changed.
Wage Growth Is Outpacing Inflation
In May 2023, wages rose 4.3% year-over-year, while inflation was just 4%. That marked the first time since March 2021 that wages rose faster than inflation. Real wage growth turned positive for the first time in over two years.
And it has remained positive ever since, including this past month. In December, wages rose 4.1%, while inflation rose 3.1%. In other words, real wages were up 1%.
Now wage growth has outpaced inflation for seven straight months.
This is very important.
As you can see in the chart below, whenever wage growth outpaces inflation, stocks rally – pretty much every time.
From early 2009 to early 2010, wage growth outpaced inflation. Stocks soared in that year.
From mid-2010 to mid-2011, wage growth outpaced inflation. Stocks soared in that year, too.
Then, from mid-2012 to early 2021, wage growth outpaced inflation consistently. That laid the groundwork for the longest bull market for stocks in history.
And, of course, ever since real wage growth turned positive back in May 2023, stocks have been rising nicely.
Real wage growth is the foundation upon which bull markets are built.
That’s partly why we’re convinced that we are, indeed, in a new bull market.
The Final Word on December’s Jobs Report
But as you’ll notice in the chart above, stocks don’t go up in straight lines, even in bull markets. They take two steps forward, one step back, then another two steps forward.
The key to making the most money possible in bull markets, then, is to strategically buy the best stocks on the “step back.”
That’s exactly what we’re in right now… which means a golden buying opportunity is fast approaching.
Now, it isn’t here quite yet. But our work suggests it will likely emerge within the next two weeks – which means you need to be ready to buy very soon.
Check out some of our favorite stocks to buy in January for big gains this year.
