May Jobs Report Shows Resilient Labor Market Despite Economic Headwinds

<div class="block">Keith Buchanan, senior portfolio manager at Globalt Investments, joined Cheddar News to assess the steady increase of stock prices amid the May jobs report. The Labor Department reported that job growth spiked last month, which points to a strengthening market even despite economic headwinds. </div>

Closing Bell

Joining me now is Keith Buchanan Portfolio Manager at Global Investments and Investment Advisory firm Keith. It's great to have you on the show today and clearly stocks in rally mode. What do you make of today's market action? Well, thank you for having me. Today's jobs report really had um a big upside surprise that really got the market going very early um in in the session as well as in the pre market. Um having beating expectations by over 100 and five jobs is showing that this jobs, labor market is indeed still very tight. And um as, as we move through the rest of the month, um we have a couple of different instances where we could test those theories of just how the labor market is tight, but no doubt the labor market is really tight. And that led to some bullet this morning and it continued throughout the day to day. Um as well as the hawks and doves of uh what the Federal Reserve's next move might be actually got something from this support themselves. So we saw average hourly earnings, uh move down from 0.5% growth to 0.3% growth. And um of course, the top line beat uh from a from a um no payroll uh labor report. So we have expectations that this labor market is really tight and we feel like that gave some buoyancy to the markets there. So are the recession concerns Keith, I mean, does this put them in the back burner? The fact that the jobs market does remain tight even mid layoffs in tech banks and media, but that consumers are still spending. And of course, the higher stock market does beget positive momentum generally that we see in the economy. That's exactly how we're looking at this jobs report and how it either fits or reshapes our expectations for the Federal Reserve's next month. Um We have a meeting in two weeks in June and then another in July, um expectations for the June meeting have come from uh a hike to a uh sorry, a pause to a skip and that their rhetoric from the Federal Reserve speakers over the last week and a half has started to reshape how we think about their next moves. Uh skip in implies that there will be more tightening, uh perhaps in July. Um But the market has really shifted in a very dramatic way and we think it's important to really have perspective here and how the Federal Reserve's expectations for the Federal Reserve's next move as well as the move throughout the end of the year have shifted. Um It's only two months ago, we expected or consistent expectations were for 3.25% to end the year, uh, from a Federal Reserve, um, rate standpoint. Now we've moved that all the way back to 5% with another hike in July and then perhaps one or two, um, cuts in the, in the end of the year. And that's completely shifted from where we were in the original bank crisis. Seemed like forever ago, but it was just a month and a half ago where, um, market expectations were pulled forward. Uh The recessionary concerns. Um, and the Federal Reserve would undoubtedly have to react with more accommodated measurements. What we are now is that the Reserve has more space and room to move as we have this consumer that's really very well employed. And as you mentioned, with just a second ago, willing to spend dollars in a very discretionary way. So what does that mean for stocks? I mean, is this an entry point that investors should be looking to get in at or do you think we might receive a bit from here? Maybe we have got a bit ahead of ourselves in the stock market. Look, we've been pushing, pushing out recessionary concerns for, uh, almost a year now and our work is leading us to look at a few different factors again, as you mentioned, uh, the US, uh, worker is very, very employed. 3.3 point 7% unemployment still getting wage gains, that's slowing some. And that's actually what we want to see from a, from a, uh, wage inflation standpoint. Um, we also wanna take a look at again the banking crisis that all the energy around A I kind of clouded. What happened in earnings in the first quarter, earnings were expected to decline by 0.6%. They actually ended up being around by a negative 2%. Um, looking forward to the rest of the year, we expect earnings growth and this is not just ours, which is a consensus of 1% in the third quarter, 8% in the fourth quarter and acceleration of 2024 but we expect 11% earnings growth. Um That's far from recessionary as well as a labor market. That is, we feel like fueling uh this economic growth that seems even stickier perhaps than inflation is. Um So we're, we're not in the pessimistic camp. Uh We look at um the bread obviously concerns us and the market is very, very narrow. The winners are are winning big and a very few uh stocks outside that are really moving in concert. Um But economically and from a broader perspective, evaluation and earnings, I really feel like this is an optimistic position uh for equity markets to continue to price in a pretty a pretty good economic situation that we're in. All right, keep you can portfolio manager at global investments.