Lately, we haven't seen much positive news from US economic data. As a result, the market seems to have plateaued. Following a horrible month for US job growth in March, April results have come out; and they prove a massive recovery from the March slump. So today, we'll discuss what we saw from April's non-farms payroll report, what it means for the US economy, and how we can expect the market to react throughout the rest of May.
April Non-Farm Payroll Growth Was Great!
As mentioned above, the recently released report proves a massive recovery with regard to jobs growth in the United States. Here's what we saw from the report…
- Total Jobs Added – In the month of April, 223,000 jobs were added to the US economy. That's up from just 85,000 in march.
- Unemployment Rate – The unemployment rate in the United States fell .1%; bringing it to the lowest number we've seen in 7 years. Currently, the unemployment rate is 5.4%
- Wages – Another very important figure we tend to look for is wages. In the US, wages rose 2.2% in the month of April.
What This Means For The United States Economy
As with any other economy, employment rates play a huge role in growth. The fact of the matter is that as the unemployment rate falls, the country as a whole gains strength. Last month, I have to admit, I was incredibly concerned. With low oil prices, and struggling economies around the world, the low job growth in the country made me think that we could be headed for another major economic disaster. However, the positive news has provided me with a sigh of relief. With strong job growth, corporations will be able to produce more, consumers will be able to buy more, and we should see compelling growth in the country's GDP.
What We Can Expect To See In The Market
With strong jobs growth, investors know that companies are growing and the economy is doing well. So, they will be more likely to pump more money into the market, driving stock prices up. However, I don't think that we're going to see the massive growth that some may expect from the positive news. There are a couple of reasons for that…
Jobs Are Recovering, But Haven't Recovered Yet – The chart below shows the US Labor Participation rate. This rate tracks what percentage of US civilians participate in the labor force. While we are seeing compelling jobs growth; we're also seeing bad news with regard to labor force participation rates. As a matter of fact, this is the lowest the rate has been since the early 80's!
Stocks Are Still Dangerously Overvalued – Lately, we've seen quite a bit of heavy resistance in the market; no matter what good news has surfaced. That's being caused because the majority of stocks are currently over bought and over valued. The reality is that for market growth to happen, earnings growth needs to happen; and the price to earnings ratio in the current market is absolutely horrible.
Keeping these things in mind, I could imagine that the positive news will push stocks back to where they continue to meet resistance, but I'm not expecting to see any major breakout activity.
What Do You Think?
Where do you think US stocks are headed and why? Let us know in the comments below!