Why The Markets Often Cheer Bad News

According to the U.S. Bureau of Labor Statistics last week, the U.S. economy only gained 235,000 jobs in August, well short of the 733,000 estimated jobs. It seems the Delta Variant is causing a pause in hiring. 

Clearly this is not a good report for the overall economic growth of the country, so why might this news actually convince some investors to be even more bullish on the stock market? The answer lies with the Federal Reserve. Earlier in August many Fed members began indicating that the Fed should begin tapering it’s current $120B per month bond purchases immediately. This caused many investors to think that they may begin raising interest rates sooner than expected. 

However, later in the month the Fed Chairman, Jerome Powell, indicated at the annual Jackson Hole Summit that the unemployment rate was still too high and that even when they begin tapering the monthly bond purchases, that does not mean that interest rates will be raised anytime soon. So, this job report reinforces Powell’s view that there is still work which needs to be done on the employment side before the Fed begin any tightening of their monetary policy.  

If you would like to discuss how these implications may impact your portfolios, please feel free to contact us at AskFreedom@FreedomFamilyOffice.com.