It was certainly a rough third quarter for the stock market. The S&P 500 dropped nearly 10% to match its biggest correction of the year. But today’s September jobs report suggests that the market could be due for a huge rebound in the fourth quarter. 

Remember: Wall Street wants to see “Goldilocks” economic data right now. The data needs to be hot enough to skirt a recession but not enough to compel the Fed to hike rates again. It needs to be just the right temperature. If we get that, stocks will rally. 

Well, today’s jobs report was exactly that. And unsurprisingly, stocks are rallying right now.

Jobs Report: The Labor Market Is Not Too Cold

The U.S. economy added a whopping 336,000 jobs in September – basically double the expectation. And excluding COVID-related anomalies, it represents one of the strongest job growth numbers in history. 

The labor market is the bedrock of the U.S. economy. So long as people have jobs, they’ll keep spending money. And so long as they keep spending money, the economy won’t plunge into a recession. 

Today’s jobs report confirms that a recession is not near.

Jobs Report: Wage Growth Is Not Too Hot

Meanwhile, wages rose less than expected. Last month, wages rose just 4.2% year-over-year, down from 4.3% in August. On a month-over-month basis, wages rose just 0.2%, below expectations for a 0.3% pop in wages. 

More interestingly, on an instantaneous basis, wage inflation basically dropped back to “normal” levels in September. 

That is, wages rose just 2.5% on a three-month rolling annualized basis in September. That’s the lowest instantaneous wage inflation rate of this cycle. Throughout 2018 and ‘19, that rate averaged 2.4%. We’re now right back to those levels. 

In that sense, today’s jobs report also confirmed that the Fed does not need to hike rates again to fight inflation.

The Final Word

Putting it all together, today’s labor market data was the exact type of Goldilocks jobs report that stocks needed to find their footing. 

And we think a pretty big fourth-quarter rally is up next for stocks… 

Which begs the question: Are you prepared to capitalize on it?

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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.