The Dow Pops on Jobs Report and Bank of America Gets Hammered Again

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) was up 77 points, to 16,913, at 1 p.m. EDT on a strong U.S. jobs report from the Labor Department.

We'll take a deep dive into the jobs numbers in just a minute, but first let's recap the other big news event moving markets this Friday morning -- the $12 billion settlement Bank of America (NYSE: BAC  ) is said to be negotiating with the Department of Justice.

For Bank of America, it just keeps getting worse ... kind of
This purported settlement comes on the heels of the megabank's $9 billion settlement in March with the Federal Housing Finance Agency. In both cases, the issues stem from the marketing of mortgage-backed securities heading into the financial crisis.

Early reports indicate that at least $5 billion of the settlement will be used to help struggling homeowners. The structure of the settlement -- partially consumer relief and partially fines -- has become the standard for these types of investigations over the past few years.

On the news, the bank's stock actually surged by over 1% through early afternoon. Why? Fellow Fool Alex Dumortier takes a hard look in this post, but the quick and dirty reason is simply that this settlement would remove a tremendous amount of uncertainty from the bank's future. Now that this investigation has seemingly been put to bed, the markets think the biggest potential fines for the bank are now in the rearview window.

As John Maxfield points out in this post, Bank of America's profits have been very volatile over the past few years. A big reason has been the continual and seemingly unexpected fines and settlements like the one announced today. Remove those events, and the bank's earnings become less volatile. Less volatility means more predictability, and that's something every investor should appreciate.

Don't forget, the markets operate on expectations for the future, not the past. With this settlement, the future looks much brighter for Bank of America.

Speaking of looking brighter, how about that May jobs report!
On Friday morning, the Labor Department reported that the U.S. economy added 217,000 jobs in May. This report marks a key milestone, as the total jobs lost during the Great Recession have now been fully recovered.

The gain in jobs was broad-based across the economy, led by professional and business services, leisure and hospitality, retail trade, education, and health.

Over the past three months, employment gains have averaged 234,000 jobs added per month, which is a massive boost from the 150,000 average of the three months prior to that. 

The unemployment rate remained steady at 6.3%, but an increase in wages indicated both increased inflation and higher growth in the economy.

Federal Reserve Chairwoman Janet Yellen is likely pleased with today's jobs report.

This is a result of supply and demand; as the labor market continues to improve and the supply of unemployed workers decreases, employers must raise pay in order to entice the smaller pool of applicants to accept their jobs.

Rising wages are a key driver of inflation. Investors should anticipate some flow through to the bond markets as expectations for rising rates will increase. This report also supports the Federal Reserve's slow push to end quantitative easing, and eventually to raise its short-term interest rate targets.

This report paints a very rosy picture for the remainder for 2014 in the U.S. economy. After the disappointment in the first quarter, that's a welcome change.

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