Jobs and wages
The Non Farm Payrolls data confirms the slowing trend of US job growth, 253K is a step up from recent prints, but rolling 3 monthly averages would suggest moderation continues.
Wages growth is “still to high”, as is NFP in level terms, but their relative changes, when combined with the decrease in job openings and quit rates (you only quit when you are confident of another job) support the Fed’s decision to effectively “pause”, and switch from a hawkish disposition to a much more dovish one.
Basically, the Fed will cut if they need to, data dependant.
Note the below.
500bps worth of rate hikes has taken nominal GDP growth down by 11 percentage points.
You wouldn’t want to keep hiking, with that sort of relationship in the back of your mind.
Again, for us, in advice land, it is a reason not to get “too bullish”, which is easy to do. Things look “okay” for now, with clear risks that could disrupt that equilibrium (it’s not even clear it’s an equilibrium!), and hence having risk on (a goodly chunk of the portfolio exposed to assets like equities, property, infrastructure) makes sense, as does having a good chunk of defensives (cash, unhedged AUD international exposures, fixed income (split across duration and floating rate high quality credit).
In other words, it’s still all goldilocks and diversification, the same story as it has been for the past 6 months.
Like Warren (ideally) at the recent Berkshire AGM, we will bide our time. Opportunities will come for the patient, and we are generating returns at present that are sufficient to hit the CPI + X objectives.
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