Last month I wrote about how ability and equity can be used as hedges against each other because when salaries go up the equity markets tend to go down and vice versa. Well today stocks hit a six-year high on news of a softening job market.
Stocks rallied sharply Friday as moderating job growth reinforced Wall Street's hopes that the Federal Reserve may soon end its series of interest rate hikes. The Dow Jones industrial average climbed more than 110 points to a fresh six-year high.Investors saw a slowdown in April employment growth as the latest sign of a softening economy, a reason for the Fed to stop raising interest rates. That countered worries over rising wages, which followed an upswing in employers' labor costs on Thursday. ...
In late afternoon trading, the Dow climbed 134.63, or 1.18 percent, to 11,573.49, about 150 points away from its all-time high of 11,722.98, reached Jan. 14, 2000.
Broader stock indicators were higher. The Standard & Poor's 500 index was up 13.03, or 0.99 percent, at 1,325.28, its highest level since February 2001; the Nasdaq composite index advanced 18.17, or 0.78 percent, to 2,342.07.
Most people have jobs, but job-holders should diversify their portfolio and buy equity so that they can take advantage of both ends of the cycle.
Its more a matter of that people are looking for the "Goldilocks" economy...not too hot, and not too cold.
The reason that a softening job market is good news for the stock market is that it signifies the possibility of an end to rate hikes by the Fed. Lower rates means lower costs to business to borrow money and expand.
On the other hand, in 2001 when the market was declining and we were in a recession, strong job growth would have been seen as good for the markets because it signified a resurgent economy and higher rates weren't really an issue like they are now.
I think one of the best lesson any of your readers could learn is that systematic investing such as 401k plans or monthly investments into an IRA or Roth will always beat market timing, or even worse, procrastination. With less than 2% of the population saving money, any form of future planning is wise.
People need to be less concerned with where the market is today and just begin a plan. In the market boom of the 90s with double digit returns across most every sector the average investor saw less than 3% return. Why?? Trying to time the market.
Now is not the best time to dive into the stock market. September 14th 2001 after the markets reopened was. The average person does not think like that however. When times are tough and the market is struggling we stick our money under the mattress. When the market is hitting all time highs we rush to invest, only to see the inevitable loss. And the cycle continues.
Set up some form of systematic investment and leave your money be. Unless you have a crystal ball you will always beat market timing.