Why the Lousy Jobs Report Boosted Wall Street

The stock market surged yesterday after the lousy jobs report. The Dow soared 160 points Friday, while the S&P 500, and Nasdaq also rose.

How can bad news on Main Street (only 113,000 jobs were created in January, on top of a meager 74,000 in December) cause good news on Wall Street?

Because investors assume:

(1) The Fed will now continue to keep interest rates low. Yes, it has announced its intention of tapering off its so-called “quantitative easing” by buying fewer long-term bonds in the months ahead. But it will likely slow down the tapering. Instead of going down to $55 billion a month of bond-buying by April, it will stay at around $60 billion to $70 billion.

(2) The slowdown in the Fed’s tapering will continue to make buying shares of stock a better deal than buying bonds – thereby pushing investors toward the stock market.

(3) Continued low interest rates will also continue to make it profitable for big investors (including corporations) to borrow money to buy back their own shares of stock, thereby pushing up their values. Apple and other companies that used to spend their spare cash and whatever they could borrow on new inventions are now focusing on short-term stock performance.

(4) With the job situation so poor, most workers will be so desperate to keep their jobs, or land one, that they will work for even less. This will keep profits high, make balance sheets look good, fuel higher stock prices.

But what’s bad for Main Street and good for Wall Street in the short term is bad for both in the long term. The American economy is at a crawl. Median household incomes are dropping. The American middle class doesn’t have the purchasing power to keep the economy going. And as companies focus ever more on short-term share prices at the expense of long-term growth, we’re in for years of sluggish performance.

When, if ever, will Wall Street learn?

This piece is cross-posted from RobertReich.org with permission.

One Response to "Why the Lousy Jobs Report Boosted Wall Street"

  1. OnaLeaMarie   February 18, 2014 at 3:24 pm

    With Wall Street increases currently being directly linked to Main Street decline, what powers that be need to be in play to change that cycle? At this point, there seems to be no incentives to move the stagnation. Working people give away more of their time, money, health and happiness and there are no counter weights in place to ask the same of the wealthy people; even in some distant future.

    Must it take yet another economic crash to draw attention to the plight of the working class, underemployed, retired, unemployed and impoverished Americans? And if so, why would a down turn work now when it did not in 2008? If not, what is it going to take to begin to bring this situation into a better balance?