stock market response to news
I was reading a lot of "markets were held down by interest rate fears in spite of the strong jobs number" this morning and thought I'd reiterate something we all know: the value of publicly traded stock is not affected directly by jobs. It is affected by two things: how much money the companies can spit off to share holders, and what the alternative investments available look like. If a positive jobs report provides previously unavaiable information suggesting profit strength, it would have a positive effect on stock values. After from the effect on interest rates (and thus the attractiveness of other investments, e.g. cash), I would think the next biggest impact the jobs situation will have on stock valuation is the pressure of wages on profit margins; this, too, is not going to excite shareholders. That wage pressures make stocks less valuable isn't a moral judgement against increasing wages; it's simply incontrovertible fact. That consumer demand will be better than if people weren't employed isn't too far behind that, I'd think — these factors will affect different companies differently, but in the aggregate — but good news for the economy isn't always good for shareholders, or vice versa.

Update (Tuesday, May 11): For example, Betsy Stark, on ABC's May 7 World News Tonight:

Well, Wall Street interpreted today’s strong jobs report as another sign the economy is heating up and in its sometimes perverse fashion used that as a reason to sell stocks.

- posted by dWj @ 11:43 PM