For the time being, bad news on the economy is good news, thanks to Janet Yellen's musings on equity valuations earlier in the week.
And why the April employment report was bad news, at least for today, revolves around two things. First, March received a huge downward revision to 85,000. Yes, weather could be to blame, but that is disturbing in the context of where stock valuations have gone this year and at this point in the economic recovery.
Second, wage growth continues to be virtually non-existent. A couple cents increase for a person working at a power plant isn't going to cut it when McDonald's (MCD), grocery stores and countless others are jacking up prices.
Stocks obviously reacted positively on the news, initially.
Having said that, there is a little bit of grey to this employment report. In other words, I don't suggest you buy the early hype that the Fed is going to stand pat on rates for the remainder of the year.
You see, there were actually several positives in the report that suggest the economy could kick into high gear this spring. And as a result of those prospects, recent readings on ISM (solid, improving) must be respected, and a data-dependent Fed is still a threat to the bulls.
Here are those positives:
- Construction jobs bounced back nicely in April.
- Professional and businesses services sector continue to add a good bit of jobs, suggesting the strong dollar has not derailed the economy and hiring plans.
"We think we will have a huge summer," said Choice Hotels International (CHH) President & CEO Steve Joyce to me the other day. Joyce cited a rebounding U.S. economy among the reasons people are booking summer vacations earlier.
His comments echoed what the CEOs of Norwegian Cruise Line (NCLH) and Royal Caribbean (RCL) have shared to me in recent months (cruise lines have had a strong "wave season" -- the period in January/February in which people book summer cruises).
In the end, Yellen still lurks.
At the time of publication, Brian Sozzi had no positions in any of the securities mentioned.