CNBC Daily Open: The Goldilocks effect

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

• The U.S. economy added 339,000 new nonfarm jobs in May, the U.S. Labor Department reported. That’s almost two times the 190,000 new payrolls that economists were expecting. The unemployment rate, however, edged up from 3.4% to 3.7% largely because of a drop in self-employment.

• The monthlong U.S. debt ceiling drama reaches its finale. On Saturday, President Joe Biden signed into law a bill that suspends the debt limit and imposes caps on government spending. Earlier in the week, the U.S. Senate voted 63-36 to pass the bill.

• PRO Almost 90% of the gains in the S&P 500 this year have been led by a group of “Magnificent Seven” stocks, as termed by Michael Harnett, Bank of America’s chief investment strategist. But the prospect of higher interest rates is causing the bank to advise that investors “need something else to catch” now.

Neither too hot nor too cold — everything in the past three days was just right.

Biden signed the Fiscal Responsibility Act on Saturday, putting to rest a completely unnecessary month of worrying about whether the U.S. will default on its debts and cause a global financial meltdown over petty politicking. So that’s done and dusted — for the next two years, at least.

And yes, the astounding number of new jobs added in May suggests that the labor market is still robust, which might add to inflationary pressures. But look beneath that number and there are promising signs that employment doesn’t have to crater to get inflation under control.

The unemployment rate was higher than expected — but still near its 50-year low. Average hourly earnings were 10 basis points lower than forecast on an annual basis — but still higher than the historical average. In sum, figures look good for workers and the Federal Reserve.

“The so-called Goldilocks has entered the house,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, said.

Markets were in a celebratory mood. The CBOE Volatility Index, which is seen as a measure of investors’ fear over the next 30 days, dropped to 14.6, its lowest since Feb. 19, 2020. This confidence was reflected in major indexes. The S&P 500 rose 1.45%, the Dow Jones Industrial Average surged 2.12% for its best day since January and the Nasdaq Composite climbed 1.07%.

All three indexes closed higher for the week; the Nasdaq, more impressively, completed its sixth-straight positive week, a streak not seen in 3 years, CNBC’s Ari Levy notes.

Even my fear that the tech rally’s too narrow was slightly assuaged. The Russell 2000 Index, an index made up of the 2,000 smallest stocks in the Russell 3000 Index, spiked 3.56% Friday, breaking its 200-day moving average and giving the index its best one-day rally since Nov. 10.

That impressive showing doesn’t bring the Russell to par with the S&P’s gain year to date, but in the past week, the Russell rose 3.3% while the S&P added 1.8%.

Still, Goldilocks’ porridge won’t stay at the perfect temperature forever. It might start bubbling again as inflation remains hot; it might congeal as a potential recession cools the economy. Enjoy it while it’s just right.