Highlights –
- The job market in the United States continues to remain strong, as it added 253,000 new nonfarm jobs last month, surpassing Wall Street's projection of 180,000 jobs. Additionally, the average hourly earnings rose by 0.5%, which was a surprise and the highest increase in a month in the last year.
- Over the weekend, Berkshire Hathaway conducted its annual meeting. During the meeting, CEO Warren Buffett announced that the company has no intention of acquiring Occidental Petroleum. He also expressed his confidence in the U.S. dollar being the primary reserve currency of the world, but cautioned that commercial real estate is being impacted by high-interest rates.
– On Friday, the U.S. markets witnessed a significant surge, with Apple's shares experiencing a boost, and regional bank stocks recovering. In Europe, the Stoxx 600 index rose by 1.1%, with Adidas emerging as a major winner with an 8.9% increase.
– U.S. Treasury Secretary Janet Yellen cautioned on Sunday that in the event the White House is unsuccessful in raising the debt ceiling, it could lead to a significant economic decline and result in economic turmoil. The U.S. is expected to reach its debt ceiling as soon as June 1st.
– At Berkshire's annual meeting, Warren Buffett revealed his preferred stocks. According to Buffett, one of the stocks is a superior business in comparison to any owned by Berkshire. The other stock, while being one of the most well-managed and significant companies globally, led Buffett to sell its shares.
Positive jobs data, a report from JPMorgan, and Apple's optimistic earnings report boosted the U.S. markets on Friday. Despite recent concerns about the banking sector, stocks made significant gains, with the Dow Jones Industrial Average rising by 1.65%, the S&P 500 by 1.85%, and the Nasdaq Composite by 2.25%.
The reason behind the Nasdaq's surge is clear: Apple's shares rose by 4.7% after the company announced better-than-expected earnings and revenue on Thursday. Other major technology companies, including Microsoft and Amazon, also experienced gains alongside Apple.
The overall stock market received a boost from the jobs report for April, which showed a larger-than-anticipated growth in employment and a record low unemployment rate of 3.4% since 1969. This positive news helped increase the confidence of investors, which contributed to the rise in the broader markets.
At first glance, the market's response might be confusing. A tight labor market implies that the Federal Reserve may continue to increase interest rates, which is generally viewed as negative for markets. For instance, when 517,000 new jobs were created in December, almost three times the forecast, the market dropped on the news. However, this time the market rallied, suggesting that traders are more worried about a recession than inflation. A robust job market increases the likelihood that the U.S. economy can keep inflation under control without contracting too drastically.
The US economy has been showing signs of slowing down. The first quarter GDP figures released at the end of April showed an annualized growth of only 1.1%, which is about half of what analysts expected. Also, the recent banking crisis triggered by First Republic's failure is spreading, leading to reduced lending by banks and ultimately slowing down the economy even further.
However, there is some good news. On Friday, JPMorgan Chase upgraded three regional bank stocks to “overweight,” stating that Western Alliance, Zions Bancorp, and Comerica were all significantly undervalued.
After JPMorgan Chase upgraded three regional bank stocks, investors reacted positively and the SPDR S&P Regional Banking ETF (KRE) increased by 6.3%. Some individual bank stocks saw significant jumps, with PacWest surging 81.7% and Western Alliance popping 49.2%.
However, it is important to note that this is not necessarily a sign that banking fears have completely dissipated. The fact that stocks can swing so dramatically in response to a note means that they can just as easily move in the opposite direction at the slightest hint of trouble. This indicates that what we are seeing is not reignited confidence, but ongoing volatility in the market.
