Buy Stocks as Investors `Misread' Jobs, JPMorgan Says

Buy Stocks as Investors `Misread\' Jobs, JPMorgan Says


June 6 (Bloomberg) -- The biggest rise in the unemployment rate since 1986 is an ``aberration\'\' and investors who sold equities today are ``completely misreading\'\' the outlook for economic growth, according to JPMorgan Chase & Co.

The Dow Jones Industrial Average fell as much as 412 points today after the Labor Department said the jobless rate increased by half a percentage point to 5.5 percent, the highest since October 2004, as an influx of students into the workforce drove the biggest jump in teenage unemployment since at least 1948.

``The surge in unemployment is probably an aberration,\'\' Thomas J. Lee, the New York-based chief U.S. equity strategist at JPMorgan, said in an interview. ``It\'s not because there were fewer jobs, it\'s because there were more people looking for jobs. Stocks are completely misreading the situation.\'\'

Lee, 39, wrote in an e-mail that ``stocks should be up\'\' after the report, which also showed payrolls fell by 49,000 in May, a smaller decline than economists surveyed by Bloomberg News had forecast. The strategist said the Dow industrials posted a 30 percent average gain in the 12 months following a jump in the unemployment rate by half a point or more since 1950. A rise in joblessness of that magnitude has occurred 16 times during that period, he said.

``Surges in unemployment happen at the end of the cycle,\'\' Lee said. ``This is showing you what happened in May, it\'s not telling you what\'s going to happen in the next 12 months. Unfortunately a lot of economic data is backward looking.\'\'

Lee expects the Standard & Poor\'s 500 Index to climb to 1,450 by the end of this year, according to a Bloomberg News survey on June 2. The S&P 500 dropped 3.1 percent to close at 1,360.68 today, while the Dow average fell 3.1 percent to 12,209.81, the steepest slide in 15 months. Crude oil rose almost $11 to settle at $138.54 a barrel.

``At the end of the day we still have things overhanging on stocks, we still have high oil prices and we still have the credit cycle we\'re going through,\'\' Lee said. ``But ultimately the economic data is showing the economy is pretty resilient.\'\'