REPORT: Employers Added 165,000 Jobs, Far Above Forecasts. A December Rate Hike Looks More Likely. Here's Why We'd Own JPMorgan.
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Key Takeaways
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| By Al Qureiyeh Reviewed by: Leo Tavolaro |
If you hoped the Federal Reserve (Fed) would cut rates to lift stocks after Thursday's plunge, Friday's jobs report says not to count on it. Your stocks may have to manage without help from the Fed.
Employers added 165,000 jobs in October, according to the Labor Department.
Economists had expected no more than 65,000.
The two months before were revised higher too.
A strong job market gives the Fed room to raise rates again. We'd own the bank that has usually beaten the market after reports like this one.
What Happened
Hiring beat forecasts by at least 100,000.
August and September were revised up by a combined 84,000.
The Labor Department made no change to how it measures jobs, so the beat is on the same basis as the forecast.
The CME Group's FedWatch tool, which reads rate futures, put the chance of a December hike at about 77% shortly after the report Friday morning.
Two-year Treasury yields, which follow the Fed's expected path, rose in Friday's trading.
So, markets took the number at face value.
This came one day after the S&P 500, the index of America's largest companies, fell 4.4%, its worst day since April 2025.
Our scorecard, through Thursday's close, is measured against the S&P 500.
If you bought SPDR Gold Shares (GLD), Coca-Cola (KO) or Visa (V) on our advice this month, you are ahead of the index.
The same goes for our late-October picks Ross Stores (ROST), Microsoft (MSFT) and Morgan Stanley (MS).
It also goes for our Nov. 3 pick, JPMorgan Chase (JPM).
If you skipped Zscaler (ZS) on our Oct. 30 advice, you avoided a drop of about 18%.
We are behind on Valero (VLO), our Oct. 14 pick, by about 17 percentage points.
We are also behind on Cisco (CSCO) and Phillips 66 (PSX).
One Hot Month Can Mislead
Investors were already gloomy: more expected stocks to fall than rise in the American Association of Individual Investors survey for the week ended Nov. 4.
First, business services, health care and transportation supplied most of October's gain.
Second, the number of people working part time because they could not find full-time work jumped.
We grant both. But the upward revisions show a firmer trend than one hot month.
What Weiss Is Saying
Weiss rates JPMorgan B+, a BUY.
The brokers that hold investors' cash rate lower. Charles Schwab (SCHW) and Ameriprise (AMP) are B, a BUY.
Raymond James (RJF) is B-, a BUY.
The exchange-traded fund (ETF) that holds brokers, the iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI), is C+, a HOLD.
The SPDR S&P Bank ETF (KBE) is C-, a HOLD.
The Nov. 2 Weiss piece was "Eli Lilly Clears a Higher Bar as Equal Weight Beats the S&P 500."
It said high short-term yields raise the bar for stocks. We agree, and a December hike would raise that bar again.
Another Nov. 2 Weiss piece was "We Called It First. Now the Bill Comes Due After Tuesday."
It said to keep bond money in short maturities, and we agree.
The Nov. 5 Weiss piece "What to Buy in This 'Housing Recession'" said the economy is headed for recession.
Friday's hiring argues against a recession soon, though we share its worry about housing.
The Nov. 5 Weiss piece "Gold's Rebound and Agnico Eagle: Why the Miners' Pullback Is an Opportunity" tied gold's rebound partly to lower yields.
A likelier hike works against that, which is why we would hold gold rather than add to it.
The Nov. 6 Weiss piece was "This Tech Company Profits No Matter Which Way Rates Go."
It favored a company that benefits from rate moves in either direction. We prefer a bank that stands to earn more if rates stay high.
Related story: Eli Lilly Clears a Higher Bar as Equal Weight Beats the S&P 500
Related story: This Tech Company Profits No Matter Which Way Rates Go
JPMorgan Has Usually Beaten the Market After Hot Jobs Reports
The chart shows the two-year yield falling through October from its late-September high.
Friday's jobs report pushed it back up.
JPMorgan said lower rates held back its interest income last quarter. We read a December hike as easing that drag.
In our own back-tests, we looked at every jobs report since 2023 that beat forecasts by at least 75,000.
There were 14 of them.
JPMorgan beat the S&P 500 in the three months after nine.
Schwab, Raymond James and Ameriprise each beat it after only about half, and did worse than JPMorgan on average.
That is why we would own JPMorgan rather than the brokers.
The record is evidence, not proof, and each period had its own story.
Buy the Bank That Stands to Gain If Rates Stay High
Buy JPMorgan Chase (JPM), rated B+, a BUY, at the next close; it closed Thursday at $337.34.
JPMorgan's net interest income, what it earns on loans and securities minus what it pays depositors, grew 13% from a year earlier.
What could work against it: the bank already counts on a December hike, which traders see as likely, so a hold would hurt.
Thursday's close is about $31 below the average analyst target tracked by MarketBeat as of Nov. 2. That is a potential gain of about 9%.
JPMorgan pays $1.65 a share each quarter while you wait. At Thursday's close, that is a yield of about 2% a year.
Our time frame is within a year, with the first check at its Jan. 14 report.
Hold Gold, but Don't Add for Now
Hold SPDR Gold Shares (GLD), rated B-, a BUY, if you own it, but don't add for now; it closed Thursday at $375.49.
Our Nov. 4 report said we would hold off on adding if hiring came in strong, and it did.
What could work against waiting: the fund has gained about 5% since that report, even with hike odds high.
What We're Watching
First, the Nov. 10 inflation report. If prices cool, we would rethink the call and say so.
Second, the Fed's Dec. 9 decision. If it holds and signals cuts, the case for JPMorgan weakens.
Third, credit. If the extra yield on risky company bonds climbs above its 12-month high, we would sell JPMorgan, and we will tell you.
Fourth, Schwab, rated B, a BUY. If its next monthly client report shows cash balances still growing, we would look again.
Bottom Line
Hiring is strong, a December hike looks likely, and JPMorgan has usually beaten the S&P 500 after hot jobs reports. Hold SPDR Gold Shares (GLD), rated B-, a BUY, if you own it, but don't add for now; it closed Thursday at $375.49.
So, don't count on a rate cut to lift stocks. Buy JPMorgan Chase (JPM), rated B+, a BUY, which closed Thursday at $337.34, at the next close.
Take care,
AL Qureiyeh
