Goldman says forget the election, the bigger market story is rising wages

While all eyes are on Tuesday's presidential election, Goldman Sachs told clients the real story for the market was the better-than-expected increase in wages contained in Friday's

jobs report. This inflationary trend should cause certain stocks to outperform into the new year, the firm said. "While investors focus on the election, stocks focus on rising wages

and expected inflation," Goldman Sachs' David Kostin wrote in the note to clients Friday. "Investors' other focus has been the 3Q earnings season, which saw more frequent

beats than usual but also negative management commentary and subsequent downward EPS revisions. In particular, companies highlighted the margin risk from higher wages." October average

hourly earnings posted a 2.8 percent annualized increase, the biggest jump in seven years, according to the Labor Department. Kostin said a basket of companies with low labor costs has

outperformed the basket of high labor cost by 7 percentage points since late June. In addition, the strategist cited recent comments from the Federal Reserve's Janet Yellen, which

"caused investors to wonder whether the FOMC will choose to let both employment and inflation continue to climb before significantly hiking rates." "Rising inflation supports

the outperformance of cyclical sectors ... over stocks with bond-like qualities [such as consumer staples]," he said. "Financials, whose earnings benefit from higher rates, and the

energy, materials, and industrials sectors typically perform best when inflation rises, as do small-caps and value stocks," he wrote. Goldman included a table of its outperforming

"low labor cost basket" in the report. Here are the 10 biggest stocks in that basket: