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Is the Rise of the American Working Class the Fall of Stock Investors?

Improvements in the US job market continue and are expected to continue for the next couple of months. For 12 times in a row, the job market realizes a monthly average of 275,000 new jobs.

While the American working class celebrates, stock investors are worried as stocks plunged hard when trading closed Friday, 6 March 2015. Wall Street warns the continued robust job market will expedite Federal Reserve’s rate hike. Fed has initially disclosed plans of a June rate hike.business-316906_640Dow Jones industrial average dropped 279 points or 1.5%, Standard & Poor’s 500 index dropped 30 points or 1.5%, Nasdaq composite dropped 56 points or 1.1%. Oil marketed in the US went down by 2.8%.

Nevertheless, some traders did not go home empty-handed as the 10-year T-bills soared to 2.25% from 2.12% the day before, while Apple’s shares rose 0.2% to $126.60.

The strengthening job market prompts decline in the stock market. Wall Street had requested the Fed to hold the “lift off” until September but it fears a rate increase could be sooner than initially expected, even sooner than June.

Steven Wieting, global chief investment strategist at Citigroup, said that even a zero rate policy is not enough considering the tapering pace of the job market. He added that Fed could very well be looking at a 25 basis point by June for short-term markets, rising thereafter. Wieting predicted a sluggish progress and more volatility in the stock market, even during the “early stages of a mild Fed tightening cycle”.

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On the other hand, Todd Schoenberger, managing Partner at LandColt Capital, said it might be unwise to sell off stocks out of fear of an early rate hike. According to Schoenberger, Fed does not raise interest rates based on headline job numbers but on immediate inflation. Schoenberger’s optimism did not stop there. He claimed that the economy is in fact “expanding at a healthy clip”.

Perhaps Schoenberger did have some points there. On Monday, 9 March 2015, Nasdaq composite closed above the 5000 barrier for the first time in 15 years, while Dow Jones industrial average and Standard & Poor’s 500 stock index gained record highs. On Monday, 16 March 2015, marks the US bull market’s sixth birthday.

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