Anyone whose profitability is all about the future, not the present, then higher interest rates hurt them. But what it reveals is the vulnerability of parts of this boom, which is if there's a bunch of AI investments that make a lot of sense when interest rates are 3% but no sense when interest rates are 5%, then that says fairly small tweaks could have big effects on stocks, which is literally what we saw on Friday. So, I'm not saying anything new, but it sort of says strap in because changes in investor sentiment could have big effects.
Welcome to Prof G Markets. I'm Ed Elson. It is June 9th. Let's check in on yesterday's market vitals. The S&P 500 and the Nasdaq rebounded from Friday's selloff. More on that in a second. Chip makers rallied with Intel jumping 10% on news that Google ordered 3 million chips from the company. Oil eased as Israel and Iran pledged to halt their strikes. And finally, Apple stock fell nearly 2% on lackluster AI product news at its developer conference.
Okay, what else is happening? The May jobs report dropped on Friday, and while it was a blowout, markets took it as bad news. The economy added 172,000 jobs last month, more than double what forecasters expected. The unemployment rate held steady at 4.3%, plus the March and April reports were also revised higher, adding another 93,000 jobs. However, this strong report caused a massive sell-off on Friday. The S&P closed down almost 3% and the Nasdaq fell more than 4%. That was its worst drop since Liberation Day. So, here to unpack this report and also why markets reacted so badly, we are speaking with Justin Wolfers, professor of public policy and economics at the University of Michigan and also founder of Platypus Economics. Justin, great to see you. Thank you for joining us again on the show. I want to get into the market's reaction, but before we do that, let's first just make sense of this jobs report, which was seemingly really strong. 172,000 jobs added in May. The previous reports revised upward. Give us your read on what we saw in that jobs report.
I think we just saw really, really good news. I feel fairly confident and comfortable saying that, but I want to be clear. I will not normally see 172,000 and jump for joy. I'll normally say look for confirmation with a few more months. And so one of the things that was so interesting is we're now at three very strong months in a row. So I'm more impressed by the fact that over the past three months we've averaged job growth round about that pace. I think it's 188,000 a month for folks who are keeping score at home. My mom's a very, very hard taskmaster. But if I brought home jobs numbers like that, my mom would probably say, 'Well done, Justin. Good job.' And so I'd say that to the US economy.
Well done.
What about people who see this jobs report, and I've seen this online, and they say, 'I don't believe it. They're lying. You know, this is some sort of grift from the president.' I mean, it seems that a lot of people, this is seemingly good news. A lot of people don't want to hear the good news because maybe their experience of the economy isn't great or they don't support the president. I mean, what would you say to those people who don't believe those numbers?
Yeah. So, I'm actually going to put out a piece tomorrow probably, if tomorrow's Wednesday, which dives into exactly that set of issues. And I'm going to relentlessly bore the hell out of my audience. So, let me instead be fun and entertaining for yours. My favorite moment was, look, I like to read the data in the most honest way I can. And so when you see good news, you say you're beauty. My favorite moment in all this, by the way, I got an enormous amount of social media vitriol for it's completely clear I've spent far too much time praising the president recently and people are upset at me. But you know, my attachment's to the truth, not to a political narrative. My favorite of these, by the way, is Threads now has community notes, and there's a post I put out in which I say, you know, the economy is going well, blah, blah, blah. There's now a Threads community note checking that and saying I'm wrong, quoting a different post by Justin Wolfers.
So I actually think it's great. It's a good reminder for all of us to have a little bit of intellectual flexibility, to be willing to change our minds, to be willing to update when the moment demands it. I will say to you very directly there is no evidence whatsoever that this number has been in any way falsified or tampered with. No data are perfect. This data surely is not perfect. It's just an estimate. It may later on turn out to be an overestimate, but it's a good, honest, totally serious estimate and we should update our views about the world accordingly.
Yeah. Just in terms of where the strength is in the job market. Something that we've been keeping track of is over the past few months, really I guess more than a year now, it seems as though the one place where the job market is really strengthening and growing is healthcare, and then everything else seems to be kind of lagging. Is that still true?
Yes, absolutely. So there's one sector called healthcare and social services which, since Trump became president, has created 901,000 jobs. Everything else, every other part of the economy, if you're not working in healthcare and social services, the rest of the economy actually has lost jobs. Now on its face that's a very striking claim. And you know, the last three months has been a little bit more mixed than that, but you never want to go off one month. So that's why I'm saying, you know, over the past year, it's all been healthcare and social services. Now, here's the thing. The rate at which we're creating jobs overall is fairly low. That's because population growth is low. So the number of jobs we need to create when there are fewer Americans is far lower. And so what that in turn means is there's always some industries doing better than others, but the closer you are to the whole not growing very much, the more likely it is you'll end up in a world in which one sector is doing all the positive and everything else is a negative. So the statistic I think is a very, very interesting talking point, but it may actually be somewhat less relevant than it sounds like, simply because in a low-growth economy it's not unusual for a bunch of sectors to be declining.
Yeah. Now just turning to the stock market, it fell pretty precipitously and it's kind of interesting why that is happening. Could you just walk us through why are investors not excited about this report that seems to be showing that the economy is doing well?
Yeah. So the first thing is, you know, very strong jobs numbers. So now what you want to do is go and play the game of Federal Reserve. And so the Fed was under some pressure to cut rates because it was worried about the labor market. We're not worried about it anymore. No pressure to cut rates. It was under pressure to raise rates because we're worried about inflation. So we went from a somewhat balanced argument to one of the arguments just going off the table altogether. So now the only question is there's inflation out there. What do you want to do about it? And the argument would be between those who are like, well, it's a supply shock. Let's just sit and wait for it to work its way through the system. And others who are like, I'm worried everything, we're going to lose everything. Let's hike rates, which is definitely the position a young Kevin Warsh would have taken. We'll see what a grown-up one does in just a few days' time. So, step one, strong economy. Step two, higher interest rates for quite a fair way out now. And then step three is, as you said, markets overall shat the bed. There's sort of two US stock markets. So, you were just reporting on the S&P 500 or on the Nasdaq. Goldman Sachs has recently put together a very nice index which is the S&P 500, and we're going to take out of it everyone who's AI or AI-adjacent. So, it's the non-AI stock market. And it turns out the non-AI stock market rose by like a couple of hundredths of a percentage point, but it rose, you know. So, I want you to think of it as flat. So all the market reaction, none of it was in Main Street, it was all in Silicon Valley. And then the question would be why would that be? And that's because the AI bets are a long-run bet that OpenAI, Anthropic, Google and Nvidia are going to be worth a lot in the future in our new AI-driven future. The higher our interest rates, the less investors value profits that are going to occur 10, 20, 30 years in the future. And so that's exactly what happened. So, particularly startups, but you know, generally anyone whose profitability is all about the future, not the present, then higher interest rates hurt them. And so I think that's the story for what happened. Now, I think the somewhat broader and more interesting thing is the logic of that pretty much makes sense. But what it reveals is the vulnerability of parts of this boom, which is if there's a bunch of AI investments that make a lot of sense when interest rates are 3% but no sense when interest rates are 5%, then that says fairly small tweaks could have big effects on stocks, which is literally what we saw on Friday. I'm not saying anything new, but it sort of says strap in because changes in investor sentiment could have big effects on the AI sector, which is now such a big part of US stocks.
Yes. And it was one of the key themes going into 2026 from an investor perspective, which is that we were entering what we all thought was a rate-cutting environment. And now it appears after this data, which yes gives us good news, but it essentially means that we all have one problem and that problem is inflation. What do we want to do about it? The only real solution to that if you're at the Federal Reserve is you hike rates. And now we look at the odds on CME of a rate hike before the end of the year in 2026, it's gone up to around 52%. So it seems very probable. I guess I think we're all on the same page. If we enter a rate-hiking environment, that's not a great thing for stocks, particularly these tech stocks that you mention. But then there's a question of how probable is it really? And that probably goes back to inflation. How bad is this inflation problem? Yes, it's nice that we have this employment problem out of the way, we think, based on the jobs report. But I guess my question to you is, given what you're seeing in the inflation, given how quote-unquote good this jobs report actually was, how likely is a rate hike? Really?
I think it's currently more likely the next move is up. It may not be too far away.
There is an unknown, which is who is Kevin Warsh? We're going to learn more about that over the next few months. This old game, it gets played out every couple of years and then a bright young explainer, in this case it's your turn, Ed, has to explain good news is bad news. And I've always, so you see this every couple of years, which is something unequivocally good happens, like the labor market's healthier, the economy's healthier, we haven't beaten it to death, and then Wall Street gets a little bit too clever and it says, oh well, so that's going to cause the Fed to overreact and the Fed will screw everything up. So good news is bad news. I've never been a fan of this story, because the other possibility is the Fed could underreact. Anytime you're confident you know which way the Fed's going to screw things up, you then have to say, 'Well, and this is how I know I'm smarter than the Fed.' And I know a lot of Fed economists, and a lot of them are smarter than a lot of the rest of us on the outside, and collectively they're brilliant. I think there's probably a reasonable basis for the claim that good news raises rates, which tilts the playing field against firms whose profits are a long way in the future. I think that's not quite the full stupid good news is bad news routine, but you might start to see the good news is bad news routine. And then that's going to be great for the show, Ed, because every two weeks you're going to have to explain it from first principles slowly and you'll sound really clever. It'll be good. Have you already been doing it all?
I can't wait. This is exactly what we do.
Yeah.
Good news is bad news, contradictions. That's what it's all about. Just before we wrap here, the one thing I'd like to point out is wage growth, which wages rose 3.4% but inflation is currently at 3.8%. This is the bad thing if we're talking just from a purely economics perspective, which is that real wages are falling. I just wanted to get your read on what we're seeing in terms of wages. This seems like not a good trajectory. And I wonder if it's going to continue.
