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Chapter 1: What is the main topic discussed in this episode?
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Welcome to Profiteer Markets. I'm Ed Elson. It is June 9th. Let's check in on yesterday's market vitals. The S&P 500 and the Nasdaq rebounded from Friday's sell-off. More on that in a second. Chipmakers rallied, with Intel jumping 10% on news that Google ordered 3 million chips from the company. Oil eased as Israel and Iran pledged to halt their strikes.
And finally, Apple stock fell nearly 2% on lackluster AI product news at its developer conference. Okay, what else is happening? The May jobs report dropped on Friday, and while it was a blowout, markets took it as bad news. The economy added 172,000 jobs last month, more than double what forecasters expected.
The unemployment rate held steady at 4.3%, plus the March and April reports were also revised higher, adding another 93,000 jobs. However, This strong report caused a massive sell-off on Friday. The S&P closed down almost 3%, and the Nasdaq fell more than 4%. That was its worst drop since Liberation Day.
So here to unpack this report and also why markets reacted so badly, we are speaking with Justin Wolfers, professor of public policy and economics at the University of Michigan and also founder of Platypus Economics. Justin, great to see you. Thank you for joining us again on the show. I want to get into the market's reaction.
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Chapter 2: What caused Wall Street's reaction to the May jobs report?
I guess, I mean, I think we're all on the same page. If we enter a rate hiking environment, that's not a great thing for stocks, particularly these tech stocks that you mentioned. But then there's a question of how probable is it really? Yeah. And that probably goes back to inflation. How bad is this inflation problem?
Yes, it's nice that we have this employment problem out of the way, we think, based on the jobs report. But I guess my question to you is, given what you're seeing in the inflation, given how quote-unquote good this jobs report actually was, how likely is a rate hike really?
I think it's currently more likely the next move is up. It may not be too far away. There is an unknown, which is who is Kevin Walsh. We're going to learn more about that over the next few months. This old game, it gets played out every couple of years and then a bright young explainer, in this case it's your turn, Ed, has to explain good news is bad news.
And I've always, so you see this every couple of years, which is something unequivocally good happens, like the labor market's healthier, the economy's healthier, we haven't beaten it to death.
and then wall street gets a little bit too clever and it says oh well so that's going to cause the fed to overreact and the fed will screw everything up so good news is bad news i've never been a fan of this story um because the other possibilities the fed could under react anytime you're confident you know which way the fed's going to screw things up you then have to say well and this is how i know i'm smarter than the fed and i know a lot of fed economists and a lot of them are smarter than a lot of the rest of us on the outside and collectively they're brilliant
I think there's probably a reasonable basis for the claim that good news raises rates, which tilts the playing field against firms whose profits are a long way in the future. I think that's not quite the full stupid good news is bad news routine, but you might start to see the good news is bad news routine.
And then that's going to be great for the show, Ed, because every two weeks you're going to have to explain it from first principles slowly and you'll sound really clever. It'll be good.
Yeah.
I can't wait. This is exactly what we do. Good news is bad news. Contradictions, that's what it's all about. Just before we wrap here, the one thing I'd like to point out is wage growth, which wages rose 3.4%, but inflation is currently at 3.8%. This is the bad thing, if we're talking just from a purely economics perspective, which is that real wages are falling.
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Chapter 3: How did the May jobs report impact market expectations?
They'll just be a little bit less than they might otherwise have been. And so these think pieces that people are at home festering because they're not getting real wage rises confounds what's happening on average with what's happening to most individuals. Most individuals are going to continue to be getting some form of real wage rise.
And I know someone's going to be angry at me that I said that because there are lots of exceptions to that rule. There are lots of exceptions to the rule. All I'm suggesting is before you inhale those think pieces, have a think about what it looks like at the individual rather than the aggregate level. Plenty of people are going to be doing okay. Plenty of people are suffering.
That's what the average tells us, but it doesn't tell us that everyone out there is suffering.
All right. Justin Wolff is Professor of Public Policy and Economics at the University of Michigan, founder of Platypus Economics. Justin, thank you for cutting through the noise with us.
Chapter 4: What insights does Justin Wolfers provide about the job growth trend?
We really appreciate it. Great pleasure, mate. We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com.
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