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The good news of rising paychecks is actually really bad news for the bull market

  • Credit Suisse tells its clients the stock market will fall if worker pay keeps going higher.
  • "History shows that accelerating wages tend to squeeze margins, spook the Fed, and precede recessions," strategist Jonathan Golub writes in the note to clients Thursday.
A worker uses a heat gun to smooth out the wrinkles on a car seat during production at the Lear Corp. manufacturing facility in Hammond, Indiana.
Jim Young | Bloomberg | Getty Images
A worker uses a heat gun to smooth out the wrinkles on a car seat during production at the Lear Corp. manufacturing facility in Hammond, Indiana.

Good news can be bad news for stocks.

As the market gyrates on every potential development on President Donald Trump's proposed tariffs, one Wall Street firm says investors should focus on wage growth instead.

Credit Suisse told its clients the stock market will fall if worker pay keeps rising, according to the firm's latest market strategy report.

"While the public debate has shifted to trade disputes, we believe this Friday's Jobs Report will be more relevant … The market's focus will be on Average Hourly Earnings," strategist Jonathan Golub wrote in a note to clients Thursday titled "Wage Inflation, Not Tariffs, the Greatest Risk." "History shows that accelerating wages tend to squeeze margins, spook the Fed, and precede recessions."

The S&P 500 fell officially into correction territory in early February, down more than 10 percent from its record reached in January. After the decline, the benchmark pared about half its losses in recent weeks.

Traders blamed the sell-off on increasing worries about rising inflation and the prospect for a faster pace of interest rate hikes by the Federal Reserve after the strong wage number from the January jobs report.

Golub cited how average hourly earnings growth has risen to 2.9 percent in January from 2.3 percent in October. Despite the rising wage trend the strategist reiterated his S&P 500 target of 3,000, representing 10 percent upside to Wednesday's close.

"While not yet problematic, an overheating labor market poses the greatest threat to profit margins and could force the Fed to become more engaged," he wrote. "While wage inflation has picked up, other indicators point to limited recessionary risk. As a result, we remain comfortable with our S&P 500 target of 3000, and a healthy continuation of the business cycle."