Stocks soared this morning as regional banks and Apple (NASDAQ: AAPL) bounced. The Dow, S&P, and Nasdaq Composite all traded significantly higher despite a far better-than-expected payroll gain, which should have stoked hawkish fears. But investors seemed more focused on Apple’s blowout earnings that beat estimates across the board.
The April jobs report, released this morning, showed that the US economy added a whopping 253,000 jobs last month, beating the 180,000 job estimate with ease. Wall Street analysts projected a selloff as large as 100 S&P points in response to the data, but the opposite happened: the market opened for a major gain and jumped higher still through noon.
But why? Wouldn’t a big payroll add increase the odds of even tighter monetary policy?
These are great questions, but buried beneath the April jobs data were some massive downward revisions. March’s 236,000 jobs were majorly revised down to 165,000 while February was knocked down from 326,000 to 248,000 jobs, meaning that both months would have missed estimates.
Combined, that’s 149,000 jobs wiped off the books. January was revised lower as well but not nearly as much.
What should have hit markets was an unexpected plunge in unemployment, which fell from 3.5% to 3.4%. Analysts anticipated an increase to 3.6% by comparison, yet stocks rallied anyway. Maybe, after all the downward revisions, the market doesn’t believe the data.
The aforementioned Apple “beat” lifted shares (independent of the jobs report) while a note from JPMorgan certainly helped, too. The bank’s strategists said that regional banks were unfairly driven lower on the news that California bank PacWest was seeking a potential sale. This caused PacWest to rally 81% on the day while Western Alliance popped 39%.
JPMorgan specifically upgraded three banks – Western Alliance, Zions, and Comerica – in its note.
But not all analysts are sold on a banking rebound just yet. SoFi’s head of investment strategy, Liz Young, echoed Charlie Munger’s comments from earlier in the week that all banks are still potentially at risk.
“When the whole news cycle started, it was sort-of explained away […] as a unique circumstance for certain institutions. The reality is that liquidity is a universal challenge,” Young said.
“The issue originally was that deposit flight was occurring. […] But now that the pressure is no longer necessarily deposit flight. It’s this mark to market of the securities on all their books.”
She continued:
“So I don’t think that this news cycle isn’t necessarily over. […] I also don’t think it dies of natural causes in the sense [that] it heats up and then just kind of cools down with no effect.”
Despite today’s rally, most banks are still on track to finish the week lower. And, until the Fed slashes rates, the bank failures should continue. That makes bank stocks massive “bull traps” for at least the next month, no matter how much the Fed, Treasury, or banks insist that we’re back to normal.
It also makes buying the current market dip a dangerous affair; another banking slipup could plunge the S&P into a bearish reversal that has the potential to materialize into the first truly major correction of the year.
