On Wall Street, bad economic news was met with cheers once again, as two major indices ended the week in record territory. Investors ignored Friday’s unexpectedly weak employment report, which revealed that far fewer jobs were added last month than anticipated.
On Friday, the Dow gained around 230 points. It and the S& P 500 both climbed nearly 1% to new all-time highs on the day, and the Nasdaq finished up around 1% as major tech stocks bounced back after a period of lagging the broader market.
The Nasdaq was also down 1.5 per cent for the week. Over the course of the week, the S& P 500 and Dow rose 1.2 per cent and 2.7 per cent, respectively.
The unemployment rate increased, and wages increased, according to the jobs report. While an increase in worker compensation does not seem to be a negative thing, it does tend to raise inflation concerns. Many economists are concerned that, as a result of Washington’s stimulus, inflation would resurface.
Despite this, investors seemed unfazed on Friday.
One explanation for the rally may be that investors believe the Federal Reserve would not abandon its easy-money policies that have propped up financial markets anytime soon — something traders have been concerned about after Treasury Secretary and former Fed Chair Janet Yellen recently indicated that rates would need to rise sooner rather than later.
“The Fed is going to have to continue to be in a position to help support the economy,” Mace McCain, president and chief investment officer at Frost Investment Advisors.
He went on to say that something that prevents the Fed from raising rates in the future is good for tech stocks, which have benefited from low-interest rates.
To that end, Apple (AAPL), Alphabet (GOOGL), Netflix (NFLX), and Tesla (TSLA), as well as Microsoft (MSFT) and other top tech stocks, all reported strong gains on Friday.
Streaming services pioneer Roku (ROKU) and Jack Dorsey’s payment giant Square (SQ) are two other tech momentum stocks that have soared as a result of solid earnings results.
But what about questions about inflation? Many workers in lower-paying positions in the leisure and hospitality industries, such as bars and restaurants, have yet to return to full-time employment, so investors likely overlooked the wage increase.
With 331,000 new jobs added in April, this sector made a strong comeback. However, after Covid-19 forced the economy to virtually shut down last March, it has remained in a deep pit.
“This report serves as a reminder that while we have come a long way from the depths of the pandemic recession, there is still a long road ahead,” said Craig Fehr, an investment strategist with Edward Jones.
As more jobs in lower-paying service industries return to work, Fehr expects wage growth to slow.
Other variables may be causing the wage data to be a little skewed.
The combination of more workers switching from part-time to full-time employment, as well as labour shortages due in part to generous stimulus checks from the federal government, according to Thomas Hogan, a senior research fellow at the American Institute for Economic Research, is artificially boosting worker pay.
The impact should fade quickly, and investors seem to understand that the Fed would not be concerned about inflation spiralling out of control as a result.