Stock Markets: Investors like jobs growth

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Investors like jobs growth.

The U.S. labor market is still hot. There were 253,000 new nonfarm jobs last month, handily beating Wall Street estimates for job growth of 180,000. Average hourly earnings unexpectedly rose by 0.5% — the biggest monthly gain in a year.U.S. markets jumped Friday as Apple shares popped and regional bank stocks recovered. Europe’s Stoxx 600 rose 1.1% — Adidas, with an 8.9% surge, was a big winner in the index.If the White House fails to raise the debt ceiling, there will be a “steep economic downturn” and “economic chaos will ensue,” U.S. Treasury Secretary Janet Yellen warned on Sunday. The U.S. might hit its debt ceiling as early as June 1.PRO During Berkshire’s meeting, Buffett shared his favorite stocks. One of them is a “better business than any we own,” Buffett said. Another is “one of the best-managed and important companies in the world” — yet Buffett decided to sell shares in it. Here’s why.

A strong jobs reading, a note from JPMorgan and an optimistic earnings report from Apple buoyed U.S. markets Friday.

The gains made by stocks were impressive — especially after the previous few days of renewed banking fears — so let’s start with them. The Dow Jones Industrial Average added 1.65%, the S&P 500 rose 1.85% and the Nasdaq Composite jumped 2.25%.

The tech-heavy Nasdaq’s jump is straightforward: Apple shares leaped 4.7% after the company reported better-than-expected earnings and revenue Thursday. Other Big Tech companies, like Microsoft and Amazon, rose alongside Apple.

Broader markets were boosted by April’s jobs report, which showed a higher-than-expected increase in jobs growth and an unemployment rate of 3.4% — a record low since 1969.

Markets’ reaction might seem confusing at first. A tight labor market implies the Federal Reserve might continue raising interest rates. Generally speaking, that’s bad for markets. Recall January’s jobs report: There were 517,000 new jobs in December, almost three times the forecast. Markets fell on the news.  

Yet this time, markets rallied, suggesting that the worry gripping traders is one of recession, not inflation. A strong jobs market increases the probability that the U.S. economy can tame inflation without contracting too severely.

Indeed, there are signs the U.S. economy has been slowing. At the end of April, we learned that GDP rose at an annualized 1.1% pace in the first quarter, about half of what analysts had estimated. The banking crisis — resurrected by First Republic’s failure — is spreading again, causing banks to lend less and ultimately slow growth even further.

There’s good news on that front, however. On Friday, banking titan JPMorgan Chase upgraded three regional bank stocks to “overweight,” saying that Western Alliance, Zions Bancorp and Comerica were all “substantially mispriced” — as I had argued in Friday’s edition of this newsletter.

Investors digested the note and pushed the SPDR S&P Regional Banking ETF (KRE) up 6.3%. Individual bank stocks saw more drastic jumps: PacWest surged 81.7% and Western Alliance popped 49.2%.

But make no mistake: This isn’t a sign that banking fears have been put to rest definitively. If stocks can swing so drastically in one direction on the back of a note, they can do so in the other at the faintest whisper of trouble. What we’re seeing isn’t renewed confidence, but continued volatility.

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