In light of Friday's November nonfarms payroll report and recent comments by Federal Reserve Chair Janet Yellen, I can't help but think of WWE superstar Dwayne "The Rock" Johnson and ask, "Can you smell a rate-hike cooking?"
On Friday morning, the Labor Department reported that 211,000 jobs were created in November, which just beats analyst consensus of 200,000. Even better, there were upward revisions to September and October's jobs figures. The unemployment rate is steady at 5% and average hourly earnings rose 0.2% for the month and 2.3% over the year.
As the November jobs report is one of the last pieces of economic data the Fed will receive before its FOMC meeting later this month, it is increasingly likely that the Fed will announce its first rate hike in nine years.
"I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market," Yellen said at the Economic Club of Washington DC on Wednesday. Even so, she cautioned that "even after the initial increase in the federal funds rate, monetary policy will remain accommodative."
With close to a 75% chance of a December rate hike, "investor focus has shifted from who benefits the most from a rate hike, to what the environment looks like after the first rate," Richard Ramsden, an analyst at Goldman Sachs wrote in a report released Friday, before the jobs data were released.
Ramsden's report focused on how the financial service industry would fare after the rate hike and pointed to uncertainty in the sector. Rising rates will change how banks are able to compete and there will be some competition in how quickly banks can reprice their deposits. Goldman Sachs' top picks for higher rates are Bank of America (BAC), JPMorgan Chase (JPM), Northern Trust (NTRS), Regions Financial (RF), Charles Schwab (SCHW) and Zions (ZION).
As for the immediate effect on financial markets, Aaron Kohli, an analyst with BMO Capital Markets, wrote in a note early Friday morning that "weakness in equities on the back of a solid number could also add a persistent bid to Treasuries and keep rates from selling off too much."
Futures markets so far suggest a higher open on Friday.