Given that the stock market over-reacts, the reaction of the stock market on Friday was interesting.  The monthly jobs reports indicated 287 thousand jobs were created last month, compared to expectations of about 170 thousand jobs.  It was a great surprise, and the Dow picked up 250 points that day.  At first blush, 250 Dow points was just the market over-reacting to one monthly report.

But, it is more interesting than that.  Friday was the same day the world was reacting to the tragedy in Dallas.  How many more points would the Dow have picked up without that tragic overhang?  A bigger over-reaction, maybe?

Is there any relationship between the Dow’s reaction on Friday to the amazing “melt-up” since the aftermath of the Brexit vote?  Yes, money is leaking out of Europe and coming to the U.S.  Yes, investors around the world are moving funds out of Europe.  They do not have the option of switching to “less risky” bonds in Europe or Japan, because interest rates are negative.  That means the investors are guaranteed to be repaid a smaller amount than they loaned out.

And, since the average dividend paid by the S&P 500 stocks is not negative, it is a much better return than negative-interest-rate bonds in Europe and Japan.  Indeed, S&P dividend rate is higher than the interest rate investors can earn on 10-year U.S. Treasury bonds.

If you are an investor with funds in Europe, where will you move those funds to negative-interest-rate bonds in Europe or Japan or dividend-paying stocks in the U.S.??

Duh . . . !