The benchmark Standard & Poor’s 500 Index rose to a new record high last Friday, gaining about 3/4 of a percent, despite a very disappointing April Jobs Report that morning, which dominated the headlines. The United States Department of Labor reported the economy added (only) 266,000 jobs last month, and that the unemployment rate rose to 6.1%. Markets were expecting an increase of about 1 million jobs, and for the unemployment rate to come it at 5.8 percent.
For the week as a whole, it was a new closing record high for not only the S&P 500, but also for the Dow Jones Industrial Average. The Dow advanced 2.7% to 34,777.76, while the S&P 500 added 1.2% to 4,232.60. Although also gaining on Friday, the NASDAQ Composite was left out of the weekly rally, losing 1.5% as the rotation to more value/cyclical stocks continued. All of this leads to the question – why would the stock market hit a record high after a jobs number that was significantly worse-than-expected?
The market believes the weakness in the jobs report means the Federal Reserve will maintain its highly accommodative monetary policy (easy money) for a longer time period. Simply put, investors decided the weak jobs data will translate into a delayed timetable for tapering (the gradual reversal of Quantitative Easing) and/or interest rate increases by the Fed.
Bottom line, the bad economic number translated into good news for stock prices and for the Bull Market. Bad news is good news!
All the best – Southport Station Financial Management, LLC