What The White-Hot Jobs Report Means For Your Favorite Stock

What just happened?

The US job market turned out to be a lot stronger than expected. New data out Friday showed the US economy added 517,000 new jobs in January, more than twice as many as the month before (blue bars). A global survey of economists had predicted job gains of just 187,000. The US unemployment rate (gold line), meanwhile, fell to just 3.4%, a low not seen since 1969.

It was the latest, thumping flex for the US job market. On Thursday, data showed the number of Americans applying for unemployment benefits had dropped to a nine-month low. And on Wednesday, the government reported that there were still 11 million job openings at the end of last month – essentially 1.9 jobs for every American that’s out of work.

What does this mean?

It’s useful information for investors to take in. See, the Federal Reserve (Fed) has two main goals. The first is to keep inflation low, and the second is to keep employment high. Since March of last year, the Fed’s been raising interest rates to tame inflation. And usually, those rate hikes eventually bring employment down too, as borrowing costs go up, profit margins shrink, and businesses let go of staff. But despite some headline-grabbing Big Tech layoffs (by companies that probably had too many employees to begin with) the US job market is still showing a ton of strength.

Why should you care?

As for what this all means for your investments, that depends. Inflation’s coming down, which is good news – and a big reason why stocks have been rallying this year.

But if you’re thinking further out, what you want to know is why inflation’s coming down.

For now, at least, it looks like it's coming down for a good reason: those rate hikes, maybe, but mostly because the pandemic era’s supply chain troubles are resolving themselves. A bad reason, meanwhile, would be because too many people are out of work and not spending the big bucks – but according to January’s data, we aren’t seeing any signs of that just yet.

And if the employment picture can stay intact while inflation keeps cooling off, you’ve got a “soft landing” scenario, and every reason to be bullish on your favorite stock.

Keep in mind it takes a good while for interest rate hikes to do their worst to the economy – anything from six months to a couple of years. So unless (or until) we see bigger signs of a US recession, there could be a window of opportunity to back the rally.