How Does the June Jobs Report Affect the Investment Banking Outlook

The Labor Department released its June employment report on Friday.  Overall, the net new jobs created was estimated at 195K.

The June jobs figures put total jobs created at around 6 million based on the household survey and around 6.5 million based on the employer survey since bottoming out in late 2009/early 2010.

Employment, 2000-2013

The market responded positively to the employment report, with the Dow and S&P 500 both up about 1 percent.

Although market participants generally viewed the June jobs report with enthusiasm, what does it mean for the investment banking industry outlook?

In simple terms, the June jobs figure could have either a positive or negative effect on the investment banking business outlook.

On the positive side, the story is fairly simple.  The jobs report could have a positive effect on the investment banking business outlook because it is a sign of further economic growth, and investment banking business models are now more pro-cyclical than competing financial sectors, such as private equity or hedge funds.

On the other hand, a positive jobs report could have a negative effect on the investment banking outlook because of the effect it could have on Federal Reserve policy risk, among others.

Essentially, the Federal Reserve is more likely to “taper” its quantitative easing program if economic conditions improve, something that could put downward pressure on the investment banking sector.

With this theoretical background in mind, how did the market actually respond to the jobs report when it comes to the big investment banks?

Here’s what happened.

Top 10 Investment Banks, Return from July 3rd to July 5th

The chart above shows that all the top 10 investment banks experienced a positive return from Wednesday, July 3rd to Friday July 5th (the day when the jobs report was released).

The bottom line: market participants thought the June jobs report was positive for the investment banking outlook.

Of course, one day’s return doesn’t necessarily make a trend, but it does provide evidence of an the market participants’ initial hunch.

Overall, the June jobs report could end up having a positive or negative overall effect on the investment banking sector.  The initial reaction, based upon the top 10 publicly traded investment banking industry, was positive.

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