Gridlock in Washington, Wages Finally Pop, Trade Tensions Remain

Equities rallied today on the election results. Traditionally, Wall Street likes divided government and gridlock as that provides more certainty as the chances of major legislation being passed are diminished. Treasury buyers were nervous about the chances of another major tax cut increasing the already huge supply of government bonds. Fed Watch: Last weeks employment report confirmed that we are finally “here”.  Years of ultra-accommodative monetary policy is helping to produce significant wage gains. Anecdotal evidence suggested that even with the tight job market, employers had been increasing everything except wages (perks, benefits, bonuses, etc). Employees finally have pricing power on wages.  Last week’s report showed healthy gains of over 3.0% in line with the Fed’s “mandate” to put the average American in a position to succeed. A rate increase in  December is a virtual certainty. A breakthrough in US China trade talks could unleash yields further upward, today the 10 year sits at 3.21% about 6 bps below its recent high. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners

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