Good Jobs ≠ Good Markets

From the desks of Stanley Katz & Lauren Madera

HAPPY NATIONAL CHOCOLATE ICE CREAM DAY! AS DEVOTED MEMBERS OF “TEAM CHOCOLATE FLAVOR,” WE DON’T NEED A REASON TO INDULGE. BUT WE’LL TAKE IT!

Markets fell for the week ending June 6th (DJIA: -0.32%, S&P 500: -2.59%, Nasdaq: -4.68%), snapping the S&P 500’s longest winning streak since 2023. Early AI-related gains gave way to a sharp selloff on Friday when a stronger-than-expected jobs report pushed Treasury yields higher and raised fresh concerns about the Fed’s rate path. The U.S. economy added 172,000 jobs in May, more than double the roughly 80,000 forecast, while April’s reading was revised up sharply to 179,000 from 115,000. The counterintuitive logic is worth unpacking. In a market already worried about persistent inflation, a resilient labor market signals the Fed has little reason to cut rates and potentially more reason to raise them. Higher rates mean higher borrowing costs and lower present values for future corporate earnings, a particular burden for high-growth technology stocks, where the Nasdaq’s weekly decline of 4.68% was the sharpest. Other data reinforced the picture, with ISM manufacturing and services indexes both beating expectations and the services price component hitting its highest level since August 2022. A strong economy running alongside sticky inflation is precisely the dynamic the Fed finds most difficult to navigate and markets find most unsettling.

Against this backdrop, a major wave of highly anticipated initial public offerings (IPOs) is about to test investor appetite. Charles Schwab’s Liz Ann Sonders and Collin Martin separated substance from hype for curious investors on their latest podcast installment of “On Investing.” The three most-discussed upcoming IPOs — SpaceX, OpenAI, and Anthropic — carry a combined valuation of roughly $4 trillion, though their path to S&P 500 inclusion may hinge on whether the index waives its profitability requirement, which none of the three is certain to meet. Beyond profitability, what matters for actual index impact is float-adjusted market cap (i.e., the portion of shares available to the public). These companies are expected to offer only 4% to 9% of their shares at issuance, below the 10% to 20% typical of mega-cap technology IPOs historically. On a float-adjusted basis, Sonders estimates the combined index impact may amount to less than 1% of the S&P 500. Lockup expirations (i.e., the period when insiders are permitted to sell their shares) typically create a phased float expansion over 6 to 18 months. This introduces its own volatility. Sonders’ overarching message is measured but clear: “fear of missing out” is a powerful force around high-profile IPOs, but understanding how a new position fits a broader portfolio matters more than chasing the headlines.

That distinction between fundamentals and sentiment sits at the heart of Capital Group’s “Three Themes for the Stock Market,” which argues that the explanation for 2026’s market resilience is more straightforward than it might seem. Despite wars, energy volatility, and stubborn inflation, markets have reached a series of new highs. Capital Group points to three reasons why:

1. Earnings growth, not sentiment: Corporate earnings have been on a tear, fueled in part by AI spending but also by banks benefiting from higher interest rates, healthcare companies advancing innovative therapies, and energy producers riding higher crude prices. Consensus estimates reflect continued strength, particularly in emerging markets, where earnings are expected to grow 18.1% by year end.
2. Multiyear AI investment cycle: Capital Group’s portfolio managers describe AI spending extending well beyond the hyperscalers into the “physical economy” including data centers, power infrastructure, and manufacturing. The AI investment cycle may have more legs than the headline technology narrative implies.
3. Geographical valuation gap: Capital Group sees a meaningful valuation gap between U.S. and non-U.S. markets, with non-U.S. developed and emerging markets showing competitive earnings growth at comparatively lower multiples.

The piece serves as a useful reminder that market resilience in difficult times is not always irrational. Sometimes the fundamentals are doing the work.

Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.

Schwab:

• IPOs in Focus as the Fed Holds the Line

Capital Group:

• Stock market outlook: 3 themes for the second half of 2026

First Trust:

• From Rate Cuts to Rate Hikes

American Century:

• Prediction Markets Explained: How They Work and Risks to Know

J.P. Morgan Asset Management:

• Why is the job market so tough for recent college graduates?

Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500

Source for weekly stock market returns: Barron’s.

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