Best US and Canada job market in 50 years

US and Canadian stock markets ended the week lower after the US central bank increased the interest rate by another 0.25% to 5.25% and called an end to the rate hike cycle for now. Bank of Canada also left the interest rates unchanged at 4.5% falling behind the US. S&P 500 declined 0.8% while Nasdaq was little changed. Canada’s main benchmark lost 0.46% last week.

The US and Canadian job reports for April showed job market is incredibly strong. US companies added 253k jobs against the 180k estimated. Canada also added 47k, double the forecast. US unemployment is standing at 3.4%, the lowest level since 1969.

The strong job market is causing concern to derail the central banks’ goal to lower inflation by increasing interest rates. As long as the job market is extremely strong and employment is at a record low, people keep their jobs and can tolerate the pain of higher rates. In such an environment, it may take much longer for the core sticky part of inflation to cool down and move back to the 2% target. Markets now are hoping to see lower inflation in 2024 and the pain of high inflation and higher rates will be around this year.

On the other side, the tech sector has shown strong results in Q1 earnings reports but the banking sector is being hit hard by the high rates. The US banking index is at a level that further decline may put them in the same situation as the global financial crisis of 2008.

The US regional banking crisis is making lending conditions so tight that even opening the possibility of the US Federal Reserve having to lower the rates in 2023 to tame the conditions. The move prices in the price of US treasuries. The scenarios really put high inflation and stability of the financial markets at crossroads.