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Bulls Take Charge Amid Upbeat Jobs Data

Investors have endured a roller-coaster ride lately, as geopolitical tensions and erratic trade policy dominate the headlines. But the week ended on a bullish note today, with the release of surprisingly robust employment growth.

Following yesterday’s steep losses, the main indices bounced back Friday to end the session in the green. Today’s gains were broad based, with cyclical stocks leading the way. The S&P 500 and Nasdaq finished the week in positive territory.

After getting battered by turmoil in Italy, tit-for-tat tariffs and foreign policy snafus, Wall Street finally saw a headline that it liked. That headline was about jobs.

The Labor Department on Friday reported that U.S. employment growth accelerated in May, pushing the unemployment rate to an 18-year low of 3.8%. The government report also showed solid wage growth, which underscores expectations that the Federal Reserve will hike rates this month.

Nonfarm payrolls increased by 223,000 jobs last month. The consensus expectation was that nonfarm payrolls would increase by 188,000 jobs in May and the unemployment rate would hold steady at 3.9%.

Average hourly earnings rose eight cents, or 0.3% last month after inching up 0.1% in April. That lifted the annual increase in average hourly earnings to 2.7% from 2.6% in April. Investors deemed this wage growth to be reassuringly tame.

If wages grow too fast, it could stoke inflation and prompt the Fed to raise interest rates more aggressively than investors would like. But for today, inflation fears took a back seat to enthusiasm over the resilience of the economic recovery. The healthy jobs report comes on the heels of positive data on construction spending and industrial production.

After a rough week of unpleasant surprises, investors were in a mood to embrace risk assets again.

Bank stocks rallied today, after federal banking regulators this week gutted the so-called Volcker Rule that kept a lid on riskier trading practices.

It isn’t just Trump’s de-regulatory stance that’s pleasing financial services. Bank revenue and earnings are getting a lift from falling unemployment, rebounding oil prices and sustained wage growth. Another tailwind for bank stocks as well as the broader markets is the Trump tax bill’s steep cut in the corporate tax rate.

Meanwhile, battered bank balance sheets are getting repaired. Lending institutions that were overextended to the energy patch are receiving relief as the rise in crude oil prices makes it easier for energy companies to service their debt.

Tech stocks also were big gainers today, as the sector’s large-cap leaders rose on the sanguine economic data. The tech-heavy Nasdaq enjoyed its best day since May 4.

The economy is showing all of this strength, even before the stimulus of the $1.5 trillion tax cut package fully kicks in. Inflation fears, combined with trade policy chaos, continue to cast a pall over the markets.

It’s increasingly likely that the Fed this year will hike rates four times, not three as initially planned. As for emerging protectionism, tariffs could shave a few points off global economic growth.

Perhaps the biggest threat of trade measures isn’t their actual cost but the arbitrary way in which they’ve been bandied about. Corporate leaders are having difficulty planning; investors remain vulnerable to nasty surprises in the daily news cycle.

Mastering the roller coaster…

When she was little, my daughter Jennifer often dragged me onto roller coasters. I always acquiesced, but only under protest.

As a pilot, I love the exhilaration of flying a helicopter. But roller coasters? They strike me as pointless.

The market’s roller-coaster volatility, though, can be quite useful.

Growing risk brings uneasiness, but it also opens the door for more short-term, tactical trades that reap quick profits.

To make money in the markets, there must be price movement. We’ve seen plenty of movement lately. One high volatility strategy is to pinpoint stocks trending in the primary market direction.

Also watch for breakouts from consolidations. “Buying the breakout” means monitoring a stock that is trading within an identifiable support range and pouncing once it breaks out to the upside. The breakout could signal prolonged upward momentum for the stock.

There are numerous volatility tactics to adopt. For options traders, high volatility is nirvana. As an investor, wild market swings can be your friend. However, while volatility increases opportunities, it also magnifies risk.

Consider pocketing at least partial profits from your biggest gainers, to keep a cash cushion on hand. The roller coaster climbed higher today, but more twists and turns lie ahead.

Friday Market Wrap

  • DJIA: +0.90% or +219.37 points to close at 24,635.21
  • S&P 500: +1.08% or +29.35 points to close at 2,734.62
  • Nasdaq: +1.51% or +112.21 points to close at 7,554.33

Friday’s Big Gainers 

  • DHI Group (NYSE: DHX) +34.78%

Staffing firm attracts big stake from hedge fund.

  • Zuora (NYSE: ZUO) +19.07%

Enterprise software firm posts robust earnings.

  • HUYA (NYSE: HUYA) +14.50%

Video game provider maintains post-IPO momentum. 

Friday’s Big Decliners

  • Sears Holdings (NSDQ: SHLD) -18.86%

Retailer continues downward spiral in sales.

  • Zion Oil & Gas (NSDQ: ZN) -11.10%

Analysts pessimistic on energy producer’s drilling projects.

  • Curis (NSDQ: CRIS) -10.43%

Biotech hit with profit-taking after run-up.

Letters to the Editor

“Does tax overhaul hurt my 401(k) retirement plan?” — Charles G.

The tax cut bill signed by President Trump in December leaves 401(k)s and Individual Retirement Accounts (IRAs) unscathed.

There will be no changes to the deductions taxpayers receive for contributing to tax-deferred retirement accounts. Curtailments were discussed but never implemented.

Questions about the tax bill? Drop me a line:

John Persinos is managing editor of Personal Finance and Radical Wealth Alliance, as well as chief investment strategist of Breakthrough Tech Profits.


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