Pod Insights Prof G Markets Why A Hot Jobs Report Spooked Wall Street About this episode Ed Elson is joined by Justin Wolfers to break down the strong May jobs report and why it sent stocks tumbling. Then, John Foley joins the show to unpack what fresh equity supply means for markets, from Google’s latest offering to the wave of anticipated IPOs. Finally, Ed shares his thesis on whether we’re reaching a top.
Justin Wolfers is a Professor of Public Policy and Economics at the University of Michigan and the founder of Platypus Economics. John Foley is the head of the Lex Column at the Financial Times.
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Transcript 6,076 words · 17 speakers
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1:43 Ed Elson? Welcome to Prof G Markets. I'm Ed Elson. It is June 9th. Let's check in on yesterday's market vitals. The S and P 500 and the Nasdaq rebounded from Friday sell off. More on that in a second. Chipmakers 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.
2:24 Ed Elson? 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 and P closed down almost 3% and the Nasdaq fell more than 4%. Now 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.
3:08 Ed Elson? 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.
3:30 Justin Wolfers? I think we just saw really, really good news. The, 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 other, 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. That's the sort of, my mum's a very, very hard taskmaster, but if I brought home jobs numbers like that, my mum would probably say, well done, Justin. Good job.
4:14 Justin Wolfers? And so I'd say that to the US economy. Well done.
4:17 Ed Elson? What about people who who see this jobs report and I've seen this online and they say, I don't believe it. Um, 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?
4:44 Justin Wolfers? So I'm actually going to put out a piece tomorrow, which dives into exactly that set of issues and I'm gonna like relentlessly bore the hell out of my audience. So let me instead be fun and entertaining for yours.
4:57 Justin Wolfers? 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. By the way, I got a just an enormous amount of social media vitriol for it's completely clear that I've spent far too much time praising the president recently and people are upset at me. Um, but you know, my my attachments to the truth, not to a political narrative. My favorite of these, by the way, is threads now has community notes. And I there's a post I I put out, I mean, in which I say, you know, the economy's going well, blah, blah, blah. There's now a threads community note checking that and saying I'm wrong quoting a different
5:41 Justin Wolfers? uh, post by Justin Wolfers.
5:47 Justin Wolfers? Uh, so I actually think it's 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. Um. 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.
6:20 Ed Elson? Just in terms of where the strength is in in the job market, what's 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?
6:41 Justin Wolfers? Yes, absolutely. So it's um, it's, there's one sector called healthcare and social services, which is since Trump became president has created nine hundred and one thousand 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. On its face, that's a very striking claim. Um. And, you know, the last three months has been a little bit more mixed than that, but, you know, 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.
7:26 Justin Wolfers? 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.
7:53 Ed Elson? Now, just turning to the stock market, uh, 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?
8:10 Justin Wolfers? 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. Um. 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. Um, let's hike rates, which is definitely the position a young Kevin Walsh would have taken. We'll see what a grown up one does in just a few days' time.
8:54 Justin Wolfers? Um, so step one, strong economy. Step two, higher interest rates for quite a, quite a fair way out now. Um, and then step three is, as you said, markets overall, um, shat the bed. Um, there's sort of two US stock markets. So you were just reporting on the S and P five hundred or on the, the NASDAQ. Uh, Goldman Sachs has recently put together a very nice index, which is the S and P five hundred. And we're going to take you 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.
9:37 Justin Wolfers? So all the market reaction, none of it was in Main Street. It was all in Silicon Valley. And that, and then the question would be, why would that be? And that's because the, again, the AI bet's 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 ten, twenty, thirty years in the future. And so that's exactly what happened.
10:15 Justin Wolfers? So, uh, the particularly startups, but you know, generally anyone who's got their 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 three percent, but no sense when interest rates are five percent. 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
10:57 Justin Wolfers? because changes in investor sentiment could have big effects on the AI sector, which is now such a big part of US stocks.
11:06 Ed Elson? 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 Calci 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 mean, I think we're all on the same page. If we enter a rate hiking environment, that's not a great thing
11:51 Ed Elson? for stocks, particularly these tech stocks that you mentioned. 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?
12:20 Justin Wolfers? 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 Walsh? 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.
13:04 Justin Wolfers? 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.
13:28 Justin Wolfers? I think there's probably a reasonable basis for the claim that
13:34 Justin Wolfers? 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 gonna, it's gonna be great for the show, Ed, because every two weeks you're gonna have to explain it from first principles slowly and you'll sound really clever. It'll be good.
13:57 Ed Elson? I can't wait. This is exactly what we do. Good news is bad news contradictions. That's what it's all about. Just before we, we wrap here.
14:06 Ed Elson? 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, 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.
14:31 Justin Wolfers? Wages aren't keeping up with prices. That's what you're seeing right now. That's a magnificent talking point. If you live in DC and people in DC, you're gonna say it a lot. Now, part of that is the spike in prices is very dramatic, very recent and very oil based, and we think probably temporary, as in even if oil prices stay high, they're not going to continue to contribute to inflation, which is the rate of change of prices. So the idea that bosses aren't sitting down and negotiating pay rises for people minutes after the straight up one was closed, probably isn't that surprising. I think the way to think about this is wages move relatively slowly and on average they tend to catch up. And the question is, you know, once we've had a few months under our belt, what are we seeing?
15:14 Justin Wolfers? So I think it's going to be a very important political talking point while surely premature to say much about the slip in living standards. And then Just one other story to brace yourself for what is going to happen. I'm just gonna, you know, Ed, I know you're a smart guy. You want to skate to where the puck's going. And so I'll tell you what next month's news stories are all going to be. There'll be a bunch of think tankers on Mass Ave in Washington DC releasing pieces saying, um, when real wages are falling, no wonder Americans are deeply unhappy. And so the fact that wages are a half point behind prices will lead them to a completely different set of stories than if wages are a
15:55 Justin Wolfers? half point ahead of prices. The idea that this is how we live our lives strikes me as a little bit odd. Um, but I think also in terms of storytelling misses the reality because the an important reality, remember is this is what's happening on average. On average, it's bad news that it is bad news that on average wages aren't rising. But remember, each of us actually lives our own independent lives and we actually have very different life cycles. Right? So Ed, my guess is the last few years have been good for you. You're a young bloke, so your wages are rising every year. That's true of everyone around about your age. Turns out, once you're around about my age, it stops. And so what that means is you will probably, you and many people in their twenties, thirties, and even forties will continue to experience wage
16:39 Justin Wolfers? rises ahead of inflation. They'll just be a little bit less than they might otherwise have been. And so these think pieces that people are at home festering because they're not getting real wage rises confounds what's happening on average with what's happening to most individuals. Most individuals are going to continue to be getting some form of real wage rise. And I know someone's going to be angry at me that I said that because there are lots of exceptions to that rule. There are lots of exceptions to the rule. All I'm suggesting is before you inhale those think pieces, have a think about what it looks like at the individual rather than the aggregate level. Plenty of people are going to be doing okay. Plenty of people are suffering. That's what the average tells us, but it doesn't tell us that everyone out there is suffering.
17:19 Ed Elson? All right. Justin Wolf is Professor of Public Policy and Economics at the University of Michigan, founder of Platypus Economics. Justin, thank you for cutting through the noise with us. We really appreciate it.
17:30 Justin Wolfers? Great pleasure, mate.
17:32 Ed Elson? We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com.
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19:18 Ed Elson? We're back with Profty Markets. As the IPO race intensifies, even the world's richest companies are competing for fresh capital. Meta is the latest company that is exploring a massive equity raise following Google's announcement of a record stock sale last week. The company is planning to spend $145 billion on AI infrastructure this year, with even higher investments expected in 2027. Meanwhile, SpaceX hits the market in just three days, with plans to raise $75 billion. Which would of course make it the largest IPO of all time. And then OpenAI and Anthropic are expected to follow with potentially even bigger fundraisers on the horizon.
20:03 Ed Elson? Joining us to discuss Meta and the broader equity supplier. We are speaking with John Foley, head of the Lex column at the Financial Times. John, thank you for joining me on Prof G Markets. Just a slew of headlines, all kind of related, which is that all of these tech companies are about to raise a ton of money. Google, of course, just did their equity offering, eighty five billion dollars that is ongoing right now. But then we learn from the Financial Times that Meta is going to do the same thing. And then I'm also hearing online that maybe Amazon's going to do an equity offering, maybe Microsoft's going to do an equity offering. Everyone's going out and raising a ton of money. I guess the big question is, what does this actually mean for markets?
20:47 Ed Elson? And what does this mean for investors?
20:49 Speaker 13 Well, in terms of what it means for markets, this is a lot of money. So part of the thing about AI is that huge numbers become absolutely meaningless. So Google's eighty five billion dollar equity raise, Meta will no doubt try something similar. Amazon, who knows who will be next, Microsoft, Oracle, you name it. These are all relatively small numbers for these big companies. So Google's equity, eighty five billion dollars is only about two percent of its market capitalization. But they start to add up. And in terms of how much equity the market can actually absorb, the numbers become quite staggering, really, especially when you add in things like SpaceX's IPO, upcoming equity issuance by OpenAI and Anthropic. We're getting into kind of record levels of equity issuance. So investors are going to have to decide fairly carefully where they put their money.
21:34 Speaker 13 In terms of the companies themselves, they've got big spending plans, as you said. They've got finite cash flows from their operations. And really, they're doing exactly what you're supposed to do if you think your shares are highly valued or, dare we say, overvalued, which is issue as much equity as you can and get while the getting's good.
21:51 Ed Elson? If the idea is to sell your stock now, which is what they're all doing, they're all deciding that the time to sell is now. You can see that as a good thing, or you can see that as a bad thing, and that is, they might believe that this is the top, that this is the moment when investors are most exuberant. You said that spirits are boisterous in your recent column. I mean, is this a signal that we're kind of at the top, or at least the animal spirits are running dangerously too high?
22:22 Speaker 13 I mean, we are all waiting for some kind of signal that we are near or at the top. And when Google announced the second equity raising, it's, you know, we, a few of us were watching nervously, thinking, is this it? Is this the moment the share prices are going to start to collapse? And they didn't. And everything was kind of okay. We had a bit of a wobble afterwards with some of the microchip companies. Like, for these companies, it is actually kind of sensible to raise equity to some degree, because equity is, you don't have to pay it back. So if you're investing in data centers, debt can be quite troublesome, because you have to service your interest costs. At some point, you have to pay back your lenders. Equity, you don't have to do that. So it does give them a lot of flexibility. It's an expensive way of raising capital, for sure. But also, all of these companies are quite large, and they're experimenting
23:04 Speaker 13 with lots of different things. Google has been raising money through issuing bonds. Meta did a huge bond issue earlier this year. Google's also issuing convertibles. It's also bringing in Berkshire Hathaway, Warren Buffett's company to, into its capital structure by issuing shares at a discount to them. So they're sort of doing a bit of everything, which is kind of what you want the CFOs of these companies to be doing. You want them to be exploring the capital markets, working out where the opportunity is. And to some degree, you want them to be quite sharp elbowed. You want Google to try and get in ahead of Anthropic and OpenAI. There's a bit of like, I think there's a bit of the hyperscale of trolling each other. Well, if you're going to raise some money, we're going to get in first, using some of the same banks that you're using, and try and raise slightly more than you do a couple of weeks beforehand.
23:47 Ed Elson? It's a really interesting point, that, you know, Google might be seeing that Anthropic's about to go public, OpenAI is about to go public. Why don't we go in and steal all of that hungry capital out there that wants to invest in AI? But interestingly, in that, in that thesis, there is an implication that if we get out first, we're going to suck all the capital out of the ecosystem, and there's not going to be enough left for the rest of you. Do you think that that is a legitimate concern as these IPOs start to ramp up, that maybe the last one is going to be the loser, that they're not going to be able to raise as much as the rest of them?
24:24 Speaker 13 It's got to be a fear that is in everyone's minds, whether it's real, I kind of doubt it. I like to think, I hope that investors still have some discernment and they will pick the stocks that are the most appealing and at any given time, they'll put their capital where it's going to get the highest return. But if you're in this hyper competitive industry where everyone is kind of going for the same goal, which is to, you know, perfect AI, attract the maximum number of enterprise customers for your large language models and for your various apps, there is, there's got to be some fear that if the market does change track, if people do lose their exuberance, then you don't want to be the one that failed to raise capital in time for that. So, so I, I do think that rationally, there is enough money to go around.
25:06 Speaker 13 I think that investors will hopefully be relatively smart about where they put it. But it makes perfect sense to try and get in ahead of your rivals. It's what I would do if I were them.
25:17 Ed Elson? We also mentioned the sheer scale of the equity issue as you've got, you know, Google, eighty five billion dollars, SpaceX, seventy five billion dollars, and then opening an Antropic. We don't know, but probably in that ballpark, I mean, that's the amount that they've been raising in their private rounds. There are some concerns now about the amount of supply that is about to just be injected into the market, that it might be a shocking level of supply. And as we know from Econ 101, more supply generally means lower prices, or it does mean lower prices. Do you think that is a concern going into the second half of the year as well, that the supply might reduce prices in the equity markets?
26:02 Speaker 13 So it could, there could be some kind of sell off as people sell out of one thing to buy into another. I mean, the S and P is enormous. It's whatever, like seventy trillion dollars of market cap, round numbers. So, so this is still relatively small compared with the size of the overall stock market. So I don't think we're going to kind of hit a brick wall in terms of available liquidity, but we have seen from various investor surveys that, that people aren't holding a lot of cash at the moment. They are, there are going to be some trade offs and it'll be interesting, for example, to see whether shareholders, as a lot of people are speculating, sell Tesla, for example, to buy SpaceX because they've already got a certain amount of Elon Musk in their portfolio and they'd rather kind of rebalance that by swapping a bit of humanoid robots and
26:43 Speaker 13 electric vehicles for space rockets and Starlink and data centers, what have you. So I, I think that's one of the things that we're nervous about, but we'll just have to wait and see what happens.
26:53 Ed Elson? Just before we let you go, you mentioned SpaceX. SpaceX is going public at the end of the week. I personally can't wait to see what happens here. It's just the scale of this thing is just absolutely mind blowing. Do you have any thoughts on this IPO and what might happen? What do you make of this company and what we've seen?
27:14 Speaker 13 It's a great question. So SpaceX is a real, like, I'm sort of sick of hearing the word moonshot in the last few weeks, but it is literally and figuratively a moonshot. It's like you look at this company and I sat down and rolled my sleeves up, tried to value it, and you find yourself doing all these ridiculous assumptions, you know, if the world spends X percent of its GDP on satellite communications by 2035. But really, it's like a number go up thing, I think. You either believe that Elon Musk is capable of something truly remarkable, and that we're all going to be mining asteroids and doing like Martian vacation travel by 20, whatever it is, or not. So it's really hard to justify this company's valuation on fundamentals. But Musk has done this before with Tesla.
27:57 Speaker 13 Tesla is mostly option value on you believing that Elon Musk can do something truly remarkable. And SpaceX is just that again. So if you like the sound of asteroid mining and spaceships, then you'll buy the shares and it really doesn't matter where he prices them. So I'm guessing it's going to go up quite a bit on the first day. Don't hold me to that, but I think there is still a lot of exuberance around him. And I think there are a lot of people who are waiting to get into the stock.
28:21 Ed Elson? Goes up a lot on the first day. I'm with you on that. Do you think it comes down on the second day, or the third, or the fourth, or the fifth?
28:27 Speaker 13 I don't want to be responsible for a collapse in SpaceX stock. But I feel about it the way I feel about Bitcoin. I'm like sure I can see that there is some utility to this. I can see what you're trying to do. Is this the price? Can I construct a discounted cash flow model that tells you that the price is whatever it is, 135 dollars a share? No, I absolutely cannot. I have no idea where the shares will land. So I would not be a buyer at this point, but maybe I'm the one who's going to miss out.
28:52 Ed Elson? John Foley is the head of the Lex column at the Financial Times. John, thank you for joining us on Prof G Markets. We appreciate it.
28:58 Speaker 13 Thanks.
29:03 Ed Elson? Just three more days until SpaceX goes public. The company will raise $75 billion, making it the largest IPO of all time. After that, Anthropic and OpenAI will go public. How much will they raise? Unclear, but given the size of their recent rounds, $65 billion and $122 billion, respectively, we can assume that those IPOs will also be massive, likely around $100 billion and almost certainly larger than SpaceX's IPO. Then there is Google, which will raise $85 billion, the largest equity financing event of all time. And then after that, possibly Meta, which supposedly wants to raise tens of billions of dollars as well.
29:48 Ed Elson? So that's already around $400 billion in new equity supply. But wait, there is more because according to Goldman Sachs, nearly $500 billion worth of shares are about to be unlocked after their lockup periods expire this year. So now we're actually up to roughly $900 billion, nearly a trillion dollars in new equity supply that is about to hit the stock market. Why does any of this matter? Well, it all goes back to supply and demand. There are two reasons why the price of a product falls. Either one, demand goes down, or two, supply goes up. This is Econ 101.
30:31 Ed Elson? It's the most fundamental principle of economics and it's what makes Chinese electronics so cheap and American houses so expensive. Well, here we have a similar situation about to play out in the stock market. And that is that the supply of new stock isn't just about to rise or increase, it is about to explode. We are about to inject the equivalent of the entire stock market of Italy into the US equity markets. What does it mean to dramatically increase the supply of a product? Well, it means dramatically reducing the price of that product. The US stock market. Market is about to get hit with a force more powerful than gravity.
31:14 Ed Elson? And that is the force of supply and demand. I talk more about this in the latest edition of my newsletter on Substack. But the thesis is quite simple. Supply is about to go way up, which means this is likely the top. Look out below.
31:34 Ed Elson? Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Shalane, Isabella Kinsel, Kristin O'Donoghue and Mia Silverio. And our social producer is Jake McPherson. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.
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