U.S. stocks end higher after cooling wage data

STORY: U.S. stocks closed higher on Tuesday as slowing wage growth data offered hope that the Federal Reserve would ease its aggressive approach to taming inflation a day ahead of the central bank's critical policy decision.

The Dow closed up a percent, the S&P gained one-and-a-half percent and the Nasdaq climbed 1.7%.

U.S labor costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, Labor Department data showed.

While that may lead the Fed to ease up on its fastest rate-hike cycle in decades, Chris Konstantinos, Director of Investments and Chief Investment Strategist at RiverFront Investment Group, says that when you parse the numbers, things are not as simple as they seem.

“We’re actually seeing an interesting bifurcation in the wages market right now, whereby the upper end of the earning picture, if you will, maybe the highest 20 or 40 percent of earners in America – we’re starting to see signs that wages are slowing down there. And in fact we've also seen layoffs pick up pretty precipitously in those types of areas. Think about tech, think about some consumer-focused companies that have announced big layoffs recently. However, at the lower end of wages, [FLASH] we expect wage gains to continue to be very strong at the low end. And I think this presents the Fed with a bit of a conundrum because when they look at aggregate wage data it's very, very strong, but it's increasingly at the lower end versus the higher end. And so that affects different parts of the economy and different industries disproportionately.”

Investors on Tuesday also digested a full plate of earnings reports. Exxon Mobil shares rose 2.2% after the oil major posted a $56 billion net profit for 2022, setting not only a company record but a historic high for the Western oil industry.

UPS shares climbed 4.7% after its quarterly profit topped estimates, while General Motors jumped 8.3% after it forecast stronger-than-expected earnings for the year.

And McDonald’s shares dropped 1.3% after the burger chain warned inflation will weigh on margins in 2023.