Morning Dow Report: Strong Jobs Growth Sends Stocks Higher, But Financials Still Lag

Morning Dow Report: Strong Jobs Growth Sends Stocks Higher, But Financials Still Lag

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After five straight days of declines, the Dow Jones Industrials needed a jolt from this morning's November employment report to break its downward trend. That's exactly what stocks got, with nonfarm payrolls rising by 203,000 and the unemployment rate plunging to 7%, its lowest level in five years. That sent the Dow up 117 points as of 11 a.m. EST. Nearly all of the stocks in the index rose, although financial stocks Visa , Goldman Sachs , and JPMorgan Chase are lagging behind the much broader gains of many of their Dow peers.

For most of the Dow's component stocks, the improving employment picture gave signs of broader activity throughout the economy. The employment report pointed to job gains in the manufacturing and transportation sectors, as well as health care, areas that indicate strength in the fundamental drivers of the U.S. economy. By going beyond service and government job creation, the report gives bullish investors some evidence that the economy could finally be creating the type of jobs that can have the most positive impact on living conditions for typical American workers. That bodes well for most of the companies that serve those workers, from consumer stocks to the manufacturers that make the products people buy.

But the price of stronger growth is an eventually reduction in the amount of bond-buying and other accommodative policy measures from the Federal Reserve, and that has a direct impact on financial stocks. Yields on 10-year Treasury bonds pulled back after spiking immediately after the employment report, but the general trend in the bond market has been toward higher yields, and that could cause some trouble for banks in adjusting to the new conditions.

Beyond the industry's fundamentals, financial stocks could continue to face regulatory pressure. JPMorgan and Goldman both must face the threat of legal and regulatory changes that could jeopardize their entire business models. For its part, Visa's profits continually raise questions about whether it charges merchants too much for its card-network services, which has motivated regulators around the world to impose limits and other measures to try to rein in the company's profit growth.

More people having better jobs is an unqualified positive for the economy. But investors need to remember that not all stocks will necessarily benefit to the same degree. In the long run, financials should get stronger if more prospects for profitable lending arise. But that doesn't mean that they won't suffer some short-term setbacks along the way as investors get used to the new economic reality.

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