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Strengthening Economy = Strong Jobs Report


The most closely watched economic report each month is the “Jobs Report” on the first Friday.  Today’s report was surprisingly strong, with 943 thousand new jobs created last month, a hundred thousand more than expected.  Plus, we learned that the number of jobs created in May and June were even more than we realized.  The unemployment rate dropped to 5.4%, a post-pandemic low, pushing average hourly earnings up 0.4% in one month, which suggests more inflation.  With all the “Help Wanted” signs, maybe today’s report shouldn’t be so surprising, but it is!

The only negative is that the “girl-cession” continues, with comparatively few women returning to the work force.  Hopefully, the re-opening of school and the re-staffing of day care facilities will bring them back within a few months.

Of course, this report is always significant if you’re looking for a job or looking to fill a job, but it is more significant that this report is a clear message to the Fed that it is time to “slow down” and allow interest rates to “normalize” or move up slowly.  Whenever the Fed makes a directional change in interest rates, the stock market tends to over-react.  When rates go up, the stock market usually goes down, but only for a while, before the bargain-hunters push it back up again.

Before the Fed raises interest rates, they will first reduce “quantitative easing” or the buying $160 billion in Treasury bonds and mortgage-backed securities each month.  Before today, most analysts believed the Fed would not begin reducing or tapering those purchases until early next year.  Now, I expect that may begin in the fourth quarter of this year.

During normal a period of rising interest rates, tech stocks under-perform, while value stocks (think:  consumer staples) out-perform.

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