Why the horrid April jobs report was actually great news for stocks
- The April
jobs reportbadly missed estimates on Friday, but the stock marketpromptly hit record highs anyway.
- That's because the market is now in a phase where bad economic news is good news for equities.
- The biggest fear for investors is an inflation spike that prompts the Federal Reserve to tightening monetary policy sooner than expected. The weak jobs report soothed those worries.
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Bad economic news is now good news for the stock market, as Friday's horrid April jobs report translated into record highs for the S&P 500 and a spike in tech shares.April saw an addition of 266,000 jobs, well below the estimated forecast of 1 million. Unemployment rose to 6.1% from 6.0%, bucking expectations for a decline. It was the worst miss since 1998.
But the significant labor-market weakness indicated by the April jobs report has investors shrugging off inflationary concerns for now. In fact, investors seem to have been emboldened to pile further into tech stocks, which carry the highest and most daunting valuations in the market.This same dynamic was on full display earlier this week - albeit in inverse fashion - after Janet Yellen's comments about interest rates needing to eventually rise caused a similarly sharp sell-off in tech stocks.
Going forward, now that the
There are varying explanations for why more Americans are not rushing back into the job market. The president of the US Chamber of Commerce called for the end of the $300 supplemental unemployment insurance on Friday, arguing that government stimulus programs have disincentivized employees to return to work.
But Fundstrat's Tom Lee thinks instead, Americans are afraid to get back to work given that the COVID-19 pandemic has yet to be eradicated."Many people are still unwilling to 'risk their lives' to get a job given COVID-19 fears," Lee said on Friday.
Whatever it may be, if the weak jobs reports continue, it could result in a jump in wage inflation as businesses are forced to pay top-dollar for workers.
But for now, as evidenced by Friday's move in the stock market, bad news is good news.