June 7, 2013

Employment Number Confirms the Bull Case

May job reports were released Friday, revealing that U.S. employers hired 175,000 employees, which surpassed economist’s expectations. Markets are in recovery mode after the number, but will still likely to close the week a bit lower.

The news should buoy investor sentiment, though, which has taken a pounding since the Nikkei slid over 7% on May 23rd. I view the report as constructive to the bull argument, with the anticipation that those exiting stocks will likely be forced to re-enter at higher levels in the coming weeks.

Fed Chairman Ben Bernanke announced last month that if the market continues to improve, the central bank will begin to slow its bond purchases. Bernanke wants to see four months of growth with an average of 200,000 jobs added to payrolls before reducing Fed buybacks. What’s more important to see is how investors will view this change in strategy. Only time will tell if the markets will end their dependence on monetary stimulus, but for the short-term the employment number should quell fears of a bigger slump in stock prices.

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