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Blue Skies for Wages … But Turbulence Ahead

Great economic news yesterday.

The Census Department announced that median household income rose 5.2% in 2015. That’s much higher than expected, and the biggest jump since the Great Recession ended.

What does it mean? First, that other signs of wage growth aren’t an illusion. Lower unemployment tends to put upward pressure on wages, and that trend seems likely to continue in the months ahead.

Second, increased consumer spending could continue – good news for a wide range of stocks, including in the consumer durables, leisure, home building and retail sectors. (For more insight on retailers, read this.)

Of course, these are long-term trends. Right now, the market is jumpy about the possibility of higher short-term interest rates, resulting in mini-meltdowns, such as what happened last Friday. That probably won’t stop until next week’s Fed meeting. So in the short run, the seatbelt sign remains illuminated. Strap in and prepare for turbulence.

And whatever the Fed does, you can bet someone won’t like it.

A rate hike could spur a selloff in both stocks and bonds, but standing pat would disappoint the inflation hawks while also causing worrywarts to wonder if the Fed has information about economic weak spots that the rest of us aren’t seeing.

I say, bring it on. If the markets move sharply, we can profit one way or another.

One of the best sources of super-profitable options ideas is my colleague Jim Fink’s Velocity Trader service. It’s normally closed to new subscribers, but the window has been re-opened for a limited time, through September 19 – and only to the first 100 to sign up. Velocity Trader is well worth checking out. Jim’s a former corporate lawyer who left his lucrative practice to become a full-time investor, and he’s produced amazing results over the past year. Find out more here.

 


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