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Down, down, job numbers down, but Wall Street’s up!

Just when the Americans were starting to worry about inflation, along came a worse-than-expected jobs number, which has hosed down hotting up fears that interest rates might rise faster than predicted by the Federal Reserve.

Allegedly experts on how the US jobs market is performing, the economists tipped 900,000 to 1 million jobs but only 266,000 showed up! Unemployment rose from 5.8% to 6.1%, which coincided with a surprising lack of workers. The March figure was revised from 916,000 to a lower 770,000, which puts the economic comeback into a new perspective, which was less worrying for Wall Street. But there are persistent complaints about a shortage of workers, with economists explaining that the Coronavirus has forced some workers to sit it out until the coast is clear or they (or most of the country) are vaccinated.

Friday’s jobs report “could indicate that labor shortages are becoming a significant drag,” Michael Pearce, senior U.S. economist for Capital Economics, wrote in a note. (finance.yahoo.com)

Despite the poor jobs number, both the Dow Jones and S&P 500 indices ended in record territory. The reason is these slower-than-expected stats for the US labour market reduces concerns about interest rate rises that could KO this stock market rally. “Overall, it is difficult to judge how much weight to put on this report at a time when most of the other evidence suggests economic activity is rebounding quickly, but it is a clear reminder that the recovery in the labour market is lagging the rebound in consumption,” Pearce added. “For the Fed, we suspect that means it will be many months before it judges the economy has made ‘substantial further progress’ towards its ‘broad based and inclusive’ full employment goal. That means any talk of tapering, let alone rate hikes, is still some way off.”

And so tech stocks had a great day, which should give our tech stocks a break on Monday, which might help offset a recent set against the stocks in the sector.

To the local story this week and the S&P/ASX 200 put on 55 points (or 0.8%) to finish at 7080.8 and we saw the market hit the best level in 14 months! And it was driven by the quality end of town — banks and miners.

For those who have been bank believers (Paul and I have been stickers), Westpac was up 4.4% to $26.09 and NAB rose 0.5% to $26.78. ANZ actually fell after reporting well but not well enough for a highly expectant market. It lost 3.4% to $27.75 but it has had a nice ride, as the chart below shows.

ANZ one year

A rough estimate tells me that’s a 76% gain in a year! Doesn’t this make you wish you heeded Warren Buffett and his “be greedy when others are fearful” counsel? And it’s easier when you’re talking about going long beaten-up blue chip companies.

On that subject, look at the losing companies for this week: Appen, Afterpay, Altium and Nuix. Are they really that bad or just out of favour with the momentum fund managers who really drive the stock market? That’s a subject for a longer story, which I will address pretty soon.

And a similar story could be made for the reopening trade travel stocks as overreaction has possibly created a buying opportunity for the patient, long-term investor.

The AFR’s William McInness summed up the travel losers over the week this way: “Qantas fell 7.4 per cent to $4.77, Flight Centre dropped 7.4 per cent to $15.51, Webjet declined 4.4 per cent to $4.78 and Corporate Travel Management lost 3.5 per cent to $17.86.”

These are reacting to not just the local lockdown in Sydney but the threat that India’s Covid containment problem and what it means for the ease with which international travel resumes.

That said, gee there looks like some value there for those who don’t have to impress fund investors each quarter!

What I liked

What I didn’t like

You have to like this

The speech this week by Guy Debelle, Deputy Governor of the RBA, which was entitled “Monetary Policy During Covid.” Guy concluded: “The recovery in the Australian economy has significantly exceeded earlier expectations, reflecting the sizeable fiscal and monetary policy support, as well as the favourable health outcomes. But significant monetary support will be required for quite some time to come.”

This is RBA-speak for “we’re not raising interest rates for a real long time.”

And this was Chris Joye’s reaction to it: “For all the doomsayers upset by the (predictable) housing boom, and who claim it is precipitating unacceptable inequality, Debelle had a brutal rejoinder: ‘would you rather the much higher unemployment and far greater income inequality that would result from millions of additional Aussies on the dole?’”.

Debelle stressed that cheaper money, expanded purchasing power, rising asset prices, additional construction and higher household incomes, consumption, employment, confidence and wealth are all essential elements of the RBA’s stimulus in practice.

Love an RBA that sticks it to its critics. Who knows, one day it might give its greatest critic, Paul Keating, a ‘return fire’ reply to his many barbs directed at the bank? Nah, that’s only wishful thinking.

And check out the stories of the week from this Report below. Anyone wondering whether banks are still a buy and what the share price outlooks for best-of-breed companies are, should do some catch up reading this weekend.

The week in review:

Our videos of the week:

Top Stocks – how they fared:

The Week Ahead:

Australia
Monday May 10 – NAB Business survey (April)
Monday May 10 – Retail trade (March)
Tuesday May 11 – Federal Budget
Tuesday May 11 – Weekly consumer sentiment (May 9)
Tuesday May 11 – Weekly payrolls and wages (April 24)
Thursday May 13 – Consumer inflation expectations (May)
Thursday May 13 – Overseas arrivals/departures (March)
Friday May 14 – Preliminary overseas travel (April)

Overseas
Tuesday May 11 – US Small Business Optimism index (April)
Tuesday May 11 – US JOLTS job openings (March)
Tuesday May 11 – China Inflation (April)
Tuesday May 11 – China credit, money supply (April)
Wednesday May 12 – US Consumer prices (April)
Wednesday May 12 – US Monthly Budget statement (April)
Thursday May 13 – US Producer prices (April)
Friday May 14 – US Retail sales (April)
Friday May 14 – US Industrial production (April)
Friday May 14 – US Trade prices (April)
Friday May 14 – US Consumer sentiment (May)

Food for thought:

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” – John Maynard Keynes, as quoted by Warren Buffett in last week’s Berkshire Hathaway Annual Meeting.

Stocks shorted:

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.

Chart of the week:

AMP Capital’s Shane Oliver shared the following chart that shows May is usually the beginning of a seasonally softer period for shares (‘Sell in May and go away’):

Top 5 most clicked:

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