Wages and salaries jump, bolstering inflation concerns

Inflation concerns have been bolstered by the largest wage and salary jump in nearly a decade. The Labor Department's jobs report released this week shows a 3.14 percent increase in wages and salaries over the last year. That's the most wages have gone up in a year since April of 2009. Contributing in large part to the wage increase were the 18 states that started the year with higher minimum wages along with private companies increasing their minimum wage.

Unemployment has remained unchanged at 3.7 percent, but non-farm payrolls increased a whopping 250,000. That is well above the 190,000 predicted by economists. The BLS report showed there was "no discernible effect" because of Hurricane Michael for the national numbers. However, because of the job slow-down from Hurricane Florence in September, analysts believe the weather likely did affect jobs in October with weather-sensitive industries up 74,000 from their 6-month average of 35,000.

Treasury bond yields jumped this morning with the 10-year Treasury note sitting at 3.178 percent in morning trading, while the 30-year Treasury bond was also higher at 3.405 percent.

Adding to this week's euphoria in equities was a positive report from President Trump, days before the midterm election, about his talks of a trade deal with China. Equities turned positive on the week due in part to the President's report and positive earnings reports, rallying close to 1,200 points from Tuesday's low of 24,252. Trading was slightly tempered on Friday because of Apple slipping into correction territory and a report from a White House official claiming the U.S. and China are nowhere close to coming together for a deal.

An economy that doesn't show signs of slowing down means it will be even harder for The Federal Reserve to hold back on raising interest rates in order to stem inflation. The Fed already has one more rate hike planned for 2018 with at least three to four more expected in 2019. Longer term interest rates should only creep higher as the months progress.

Consumer confidence swelled to an 18-year high in October due to the strong labor market and belief that the current economic wave will hold on through 2019. That is a sign that the current volatile stock market does not accurately reflect the economy as a whole. So while your 401k may be taking jabs, this market is not likely to deliver a knockout blow to your savings.

Housing shift

Data released this week may herald upcoming relief for buyers. According to the Case-Shiller Home Price Index, from S&P Dow Jones Indices and Core Logic, home prices rose by 5.8 percent, the first time in a year that number has been below 6 percent.

When you look at it across a timeline you see the 10- and 20-City composites are far below the 2014 peak and creeping back to 2007 levels. Real estate in Southern California is bearing the brunt of that, slowing to a pace not seen since just before the crash. The area saw a near 18 percent drop in the number of new and existing houses and condos sold during September.

If you're concerned this is a precursor for another housing crisis, know that that's not likely. Credit is in a much better position than it was in 2007 and home prices aren't necessarily falling, they're just not climbing as fast as they were in previous years and not plateauing, for now.

Fed considered easing bank regulations

The Federal Reserve put forth an interesting proposal this week that would ease compliance regulations on commercial banks. Their idea is to have four tiers of regulation for banks with more than $100 billion in assets to make it easier for banks with less risk.

Part of the proposed guidelines state that most domestic firms with $100 billion to $250 billion in total consolidated assets wouldn't be subject to standardized liquidity requirements. The firms that would be considered lower risk would also only have to run supervisory stress tests every two years instead of annually.  

The Fed is asking for public comment on the proposal and is accepting comments through Jan. 22, 2019.

Fed Chair Jerome Powell release a statement about the proposal, saying "The proposals would prescribe materially less stringent requirements on firms with less risk, while maintaining the most stringent requirements for firms that pose the greatest risks to the financial system and our economy."