Positive Jobs Data Propels Equities Higher

Jobs affected markets more than tariffs, as equities marched higher last week.

Investors who listened primarily to financial media were disappointed last month. There were 21 primary headlines that moved markets during May. If we analyze those headlines, at least 40% were tariff-related and another 40% were related to Treasuries or interest rates. Despite all of the nashing of teeth over this headline or that headline, the S&P 500 Index gained more than 6% during the month. Meanwhile, containers shipped from China to the U.S. exploded higher last week by almost 40% to reach the level last seen in January of this year, before the trade war with China began. April and May saw revenues from tariffs exceed any month for the previous 20 years. If there is no sustained disruption in shipping and tariff revenue continues to come in at a steady pace, any significant trade deal would prove a windfall for the economy.

While there are plenty of headlines to suggest the economy is ready to roll over, the hard evidence just isn't visible, at least not yet.

The National Financial Conditions Index published by the Chicago Federal Reserve measures whether or not financial conditions in the U.S. are loose (favorable) or tight (unfavorable). Of the 105 contributors to the index, 94% are looser than average. Two of the sub-indexes of that index are Credit and Risk. The sub-index for Credit shows a negative value, meaning there are no warning signals flashing in credit markets that would resemble pre-recessionary periods of the past. At the same time, the sub-index for Risk is at very low levels, also not resembling recessionary warning levels. Job Openings increased last month, while Job Cuts decreased. The Unemployment Rate held steady in May and jobs were added in the economy. As long as consumers have jobs and continue spending, the economy is likely to grow.

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