the Dow Jones Industrial Average (DJINDICES: ^ DJI) is back to all-time highs now, up 140 points to 35,204 on August 6 at 2:39 p.m. EDT, following the Department of Labor’s latest employment report that beat all expectations. The report showed that US non-farm employers created 943,000 new jobs in July and the unemployment rate fell 0.5% to its lowest level in more than a year.

As a result, bank stocks are on the rise today, with Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE: JPM) leading the Dow, up nearly 3% or more at the time of writing. American Express (NYSE: AXP) stocks are also up today, as investors believe the jobs report has the potential to lead to a Fed policy change that would be good for banks, coming sooner rather than later.

A closer look at the Jobs report (and why it’s a big deal)

The employment report’s two figures – 940,000 new jobs and 5.4% unemployment – are significant and impressive. The first is important because it underpins the expectation of real growth in the US economy, and the second because it places the unemployment rate at the lowest levels we have seen in the COVID era. -19:

MoM data on non-farm wages in the United States by YCharts

Several other data points were also very positive and showed the continued strengthening of the economy and the recovery in employment.

• Temporary layoffs decreased by 572,000.
• Long-term layoffs fell by 560,000.
• Salaries continue to rise.

Why bank stocks rose on the jobs report

In short, because investors think that it could cause the Fed to act more quickly on the change of monetary policy, in particular its plans to hike interest rates, which would be a boon for bank stocks. Over the past year, the Fed has been pretty firm in its intentions to keep interest rates near zero for the foreseeable future, particularly as long as unemployment remains at high levels.

Overnight Federal Funds Rate Data by YCharts

The jobs report painted a very clear picture that the labor market is improving rapidly and sustainably. We have seen employers adding jobs at a very high rate over the past year, but long-term layoffs and the number of people unemployed because their employers shut down or cut hours due to the pandemic were remained stubbornly high.

These numbers are still high, but they are falling rapidly. The 1.1 million job decline in layoffs was supported by 1 million fewer people reporting being out of work due to their employer’s closure or reduction in hours due to the pandemic. In other words, businesses are ramping up and reopening.

Why it’s a potential boon to bank stocks

This is positive for the banks in several respects. For Goldman Sachs and JPMorgan, investment banking activity should continue at a strong pace. M&A activity approached $ 2.9 trillion in the first half of the year, and a vibrant economy, along with potential tax policy changes, are likely to keep transactions going. Goldman has already experienced a record second quarter in its investment banking activities.

For JPMorgan and American Express, a strong job market underpins continued economic recovery. Consumer spending is on the rise, pushing American Express revenue up 33% in the second quarter, and almost to 2019 levels, driven by spending on goods and services which is already 16% higher than it two years ago. Travel and entertainment spending is still on the decline, but the reopening of the economy – a large number of added jobs have been created in restaurants, bars and places of entertainment – bodes well for them. consumer loans and credit card operations of AmEx and JPMorgan.

JPM Total Yield Level Data by YCharts

Finally, the rise in interest rates. If the job market does recover faster than expected, the Fed could raise interest rates sooner than expected. This is a positive point for these three companies, which rely on lending as an important part of their business – they are banks after all.

What should investors think of this? First, this was a definitely positive employment report, with the caveat that the increase in COVID-19 cases and hospitalizations due to the delta variant is likely to have an impact. on the next jobs report, and that could take the veils of bank stocks breathtaking. as fast as he boosted them this time.

But for investors looking to build long-term wealth, a rising interest rate environment would certainly be a boost for banks. We just don’t know how soon the rates will start to rise again. But there’s a good chance that won’t happen until 2022 at the earliest, even as we see continued accelerated gains in future jobs reports.