The April Jobs Report was Just Bad Enough to Be Good for Stocks
I am sure that when many people saw the headline number from the April jobs report this morning, a lot of them were shocked, and felt some combination of disappointment and fear. On the surface it looked bad: only 266,000 jobs were created in the U.S. last month, way short of the million or so expected by economists, with a downward revision of last month’s numbers to boot. I, however, looked at it differently, and, after the expected big drop initially, it seems that the market agrees with me. The move down on the Dow futures has begun to retrace and the Nasdaq front end contract has jumped significantly.
The reason is simply the thing that I, and lots of other market watchers, have been repeating for a year or so to anyone that will listen. Once the Fed decided to pursue a monetary response to the pandemic by buying massive amounts of bonds to force rates low, and in the process, handing billions of dollars of investable cash to banks, that became the most important factor by far in market sentiment. Every bit of news, every data release, every everything, is seen through the prism of how it will affect the Fed.
So, the market take on the jobs data, once the dust settled, is that they make a policy reversal by the Fed that much more unlikely. Jay Powell and the other central bank board members have said frequently that they didn’t feel that the economy was strong enough to bear the brunt of rate increases, or even of slowing the injection of cash. They have also said that any inflation we have seen is only “transient” because the pandemic did lasting damage to the economy and to the jobs market. These disappointing numbers will be held up by them as evidence that both of these things are true.
There is only one other thing that really matters to the market right now, and these numbers create a positive there too. Consumer spending and sentiment, along with personal income data, are strong, at least in part due to a couple of rounds of massive fiscal stimulus coming from Congress. These numbers make it far more likely that there will be more cash handed out that way too. The Republican case that it isn’t needed is a lot harder to make today than it was yesterday. They will no doubt say that this is a result of unemployment payouts that are too high, discouraging people from working, but a big jump in the participation rate belies that argument. If people didn’t want to work because they were being paid to stay home, there wouldn’t be more people in the work force. A better argument may be that this shows that wages have to increase, which is inflationary and could necessitate changes later.
For now, Joe Biden’s argument that the economy needs more stimulus just got a lot stronger.
You may believe that, in the long run, all of this is terrible news. It sounds a lot like an economy that is being propped up artificially, with a market that is dependent on a continuing asset bubble rather than on strong economic fundamentals. You may be right, too, but there is an equally good chance that you are not. Both fiscal and monetary support were always designed to be short-lived, and if they provide support while the economy recovers and comes back stronger, those fundamental factors could well support these levels in equity markets before too long.
What the reaction to these data acknowledges, however, is that that is an argument for another day. Right now, this jobs report was just bad enough to be good for the market. It increases the likelihood of more free money, both for businesses and individuals, but can easily be seen as just a blip in what was bound to be an uneven recovery given the global resurgence of Covid. As vaccination rates increase, this recovery will continue, and now it looks like it will do so with the Fed and Congress continuing to support it. It may seem strange that such a “bad” number is good news for stocks, but that is where we are. While we might see some near-term volatility, the jobs report did nothing to derail this bull market.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.