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I don't get why the stock market rallied on a strong jobs report. Strong jobs report = the Federal reserve hasn't achieved what they wanted yet (slightly more

I don't get why the stock market rallied on a strong jobs report. Strong jobs report = the Federal reserve hasn't achieved what they wanted yet (slightly more unemployment and to bring wages down) In order to achieve their mission, they'll keep hiking rates or hold them higher for longer. How is that good news for the stock market? There's easily been at least a few job reports in the past 6-12 months where, if it was positive, because of the Federal Reserve implications, the market falls. "Good news is bad news" and vice versa

hammock 3y ago
>Strong jobs report = the Federal reserve hasn't achieved what they wanted yet (slightly more unemployment and to bring wages down) Good news is now good news though, as despite what your are saying (which has been true) the Fed has made it extremely clear they are pausing and will not raise rates again this cycle
- jjtheblunt 3y ago
  Is that believable?
  - hammock 3y ago
    That’s a personal question
    - jjtheblunt 3y ago
      good point!
- williamDafoe 3y ago
  You are talking about the foxes that killed all the hens when Powell printed his 15 trillion dollar bubble in April 2020 and exactly that fox is now guarding the inflation hen house. Of course he's going to say "one and done" every time he raises rates because he's a fool and doesn't want to draw more attention to his big life mistake!
  - bradleyjg 3y ago
    He wasn’t the only one pouring endless trillions into the economy. Congress, under both parties, lit an unprecedented amount of money on fire.
  - deleted 3y ago
    [deleted]
epolanski 3y ago
Markets can stay irrational for a very long time, sometimes multiple years. Only long term trends are really meaningful.
- fnordpiglet 3y ago
  Have markets ever been rational? They’re typically consistent, and you can make money arbitraging on inconsistencies, but rationality in markets is an economists delusion.
  - __MatrixMan__ 3y ago
    If they are rational then I think the corelary is that they hate us. So I prefer to assume that they're irrational.
  - DannyBee 3y ago
    No, they haven't. That said, economists have lots of delusions about markets (and i point them out), but to be fair, their rationality claim is usually about efficiency, rather than some form of more general rationality. IE rationality is things like "excess pricing opportunities are rare and go away quickly" rather than rationality is "people do generally sane things"
    - fnordpiglet 3y ago
      Yes, that’s what I mean by consistency. Put call parity will generally exist because it’s consistent with expected behavior, otherwise market participants will capture the inefficient pricing and bring it back to consistency. Here I mean the market has some structure and relationships between instruments and in so far as prices are consistent with the structure of the market and it’s instruments they’re “efficient,” or perhaps rational. But I think when people say “is the current marker rational or is it exuberant?” they don’t mean consistent / efficient, they mean “aligned with fundamentals in a way that makes rational sense to an economist.”
- stocknoob 3y ago
  As Buffet said, in the short term the market is a voting machine, in the long run a weighing machine.
kibwen 3y ago
> I don't get why the stock market rallied on a strong jobs report. The stock market is entirely divorced from the economy. All that matters is investor sentiment, which, in some cases, might correlate with the economy, but for the most part it's somewhere between a horoscope and a casino. Don't assume rationality from the stock market.
- abirch 3y ago
  And don't overweight news headlines with the stock market, the people who are writing them are frequently paid by the click.
- tengbretson 3y ago
  That doesn't sufficiently explain what's going on though. Sure, at this point its best to not think of stock performance as a proxy for economic health at large, but institutional investors still finance their trips to the casino on credit, so its still reasonable to think that a marker for higher interest rates should bring down investor sentiment.
- osigurdson 3y ago
  In the short term it is a slot machine, in the long run it is a weighing machine. I think Buffett said that.
eek2121 3y ago
Just an FYI because I see a particular piece of info repeated everywhere. The fed is NOT out to increase unemployment or lower wages. They are out to combat inflation. Making money more expensive to borrow does this. Corporations may choose to lower wages or lay folks off, but they don't have to. The fed could care less. They aren't out to get workers. Note that I'm not defending them, but you are the 4th person to claim that the fed is looking to increase unemployment and decrease wages. If inflation hit zero tomorrow, rate changes would stop. tl;dr - please stop confusing correlation and causation.
- treyfitty 3y ago
  Fed has a dual mandate. High inflation is often correlated with low unemployment and Vice versa.
- lucubratory 3y ago
  This is just flatly wrong. The head of the Federal Reserve has been very clear that he considers wage growth to be the principal contributor to inflation, and "combating wage growth" to therefore be an important part of decreasing inflation. What do you think "combating wage growth" means if not lowering wages and increasing unemployment?
  - Aunche 3y ago
    >The head of the Federal Reserve has been very clear that he considers wage growth to be the principal contributor to inflation This is not what he said, and despite putting it in quotes, he never said that he was "combatting wage growth". Even if he was, it doesn't matter because regardless of the source of inflation, the only thing that the Fed can do to control it is to raise interest rates. By the time the Fed did so, inflation was already outpacing wage growth, so the narrative that a worker revolution is just around the corner that the Federal Reserve wanted to suppress is completely unfounded.
    - DangitBobby 3y ago
      It's pretty close to what he said. > The chairman of the U.S. Federal Reserve, Jerome Powell, said his goal is “to get wages down.” > In a press conference on May 4, Powell announced that the Fed would be raising interest rates by half a percentage and implementing policies aimed at reducing inflation in the United States, which is at its highest level in 40 years. > According to a transcript of the presser published by the Wall Street Journal, Powell blamed this inflation crisis, which is global, not on the proxy war in Ukraine and Western sanctions on Russia, but rather on U.S. workers supposedly making too much money. > “Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years,” Powell complained. > The Fed’s proposed solution: bring down wages. > There are more job vacancies than there are unemployed people in the United States, as the economy recovers from the Covid-19 pandemic. > Powell claimed this discrepancy between job vacancies and unemployment is due to high wages, which discourage workers from taking bad, low-paying jobs with few benefits, and therefore give them too much power. 1. https://mronline.org/2022/05/26/u-s-federal-reserve-says-its-goal-is-to-get-wages-down/ https://mronline.org/2022/05/26/u-s-federal-reserve-says-its... So yes, apparently workers are getting a bit uppity and it's time to put them back into place.
tunesmith 3y ago
At least the CAPE ratio is below 30... For people whose retirement funds have basically "recovered" from the peak, that's good news for rational markets since CAPE was around 38 back then. Of course, that's just relatively speaking. CAPE is still very high; just going by that there is still room for a major crash.
- williamDafoe 3y ago
  For regular P/E ratio regression to the mean would mean a P/E of 15x. Right now the regular P/E is 24x. So we could still see a 33% drop in stocks due to all the bubble blowing from the fed. https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio
jfengel 3y ago
"The stock market did X because of Y" is nearly always a fable. It's a bedtime story to help people cope with the fact that most of what the market does on scales shorter than a year is random. The financial need is a million stories, and the headline is only slightly more relevant than the 999,999 other mutually contradictory ones. Don't put any weight on the talking head on the news. He's just talking to hear himself talk.
- mech765 3y ago
  I think that calling it random is a mischaractetization. It's more of "market movements are caused by a combination of millions of people trading on millions of narratives and data points, and when news breaks, much of the new associated information has already been priced in."
  - jfengel 3y ago
    I would call it random in a thermodynamic sense. You can't have all of the relevant information. You know the long term fairly well but the short term is noise. Most supposed jolts are smaller than you imagine, and can disappear before any noticeable effect.
dehrmann 3y ago
I realize the second-order thinking here, I do have to point out you're asking "why the stock market rallied on a strong jobs report." In what bizarro world is this a bad thing?
deleted 3y ago
[deleted]
danielmarkbruce 3y ago
The idea they are focused on reducing employment isn't accurate. They have several goals. One is CPI around 2%, another is full employment, another is moderate long term rates. CPI is down significantly from peak. It's possible we'll get back to 2-3% without a ding on employment and without more interest rate increases. That's what people are likely cheering.
- pclmulqdq 3y ago
  I think you may be right on the money. I read Bloomberg most days, and there's a through-line in a lot of their reporting on inflation of a "soft landing" to the inflation problem. What exactly this means seems to vary, although it is intended to mean something along the lines of "inflation goes back down without hurting the rest of the economy" for different ideas about what "hurting the economy" means. The stock market seems to like the idea that we may have a "soft landing" scenario on our hands. Still, you may view this as investor optimism.
- MuffinFlavored 3y ago
  > CPI is down significantly from peak. But that wasn't the news released on Friday. The S&P popped 1.8% upward in 1 day based on a reaction to the job numbers. if job_numbers == good { do_not_get_back_to_200_bps_federal_funds_rate = true; } if do_not_get_back_to_200_bps_federal_funds_rate { reprice_market_valuations(downward); }
  - danielmarkbruce 3y ago
    Has a bug.
awaythrow483 3y ago
The stock market is an incoherent junkie standing on the edge of the precipice and trying to get its fix. It's going to shape all news into good news. There is no alternative https://www.spglobal.com/spdji/en/indices/strategy/sp-us-equity-risk-premium-index/#overview https://www.spglobal.com/spdji/en/indices/strategy/sp-us-equ...

hammock 3y ago

>Strong jobs report = the Federal reserve hasn't achieved what they wanted yet (slightly more unemployment and to bring wages down) Good news is now good news though, as despite what your are saying (which has been true) the Fed has made it extremely clear they are pausing and will not raise rates again this cycle

jjtheblunt 3y ago
Is that believable?
- hammock 3y ago
  That’s a personal question
  - jjtheblunt 3y ago
    good point!
williamDafoe 3y ago
You are talking about the foxes that killed all the hens when Powell printed his 15 trillion dollar bubble in April 2020 and exactly that fox is now guarding the inflation hen house. Of course he's going to say "one and done" every time he raises rates because he's a fool and doesn't want to draw more attention to his big life mistake!
- bradleyjg 3y ago
  He wasn’t the only one pouring endless trillions into the economy. Congress, under both parties, lit an unprecedented amount of money on fire.
- deleted 3y ago
  [deleted]

epolanski 3y ago

Markets can stay irrational for a very long time, sometimes multiple years. Only long term trends are really meaningful.

fnordpiglet 3y ago
Have markets ever been rational? They’re typically consistent, and you can make money arbitraging on inconsistencies, but rationality in markets is an economists delusion.
- __MatrixMan__ 3y ago
  If they are rational then I think the corelary is that they hate us. So I prefer to assume that they're irrational.
- DannyBee 3y ago
  No, they haven't. That said, economists have lots of delusions about markets (and i point them out), but to be fair, their rationality claim is usually about efficiency, rather than some form of more general rationality. IE rationality is things like "excess pricing opportunities are rare and go away quickly" rather than rationality is "people do generally sane things"
  - fnordpiglet 3y ago
    Yes, that’s what I mean by consistency. Put call parity will generally exist because it’s consistent with expected behavior, otherwise market participants will capture the inefficient pricing and bring it back to consistency. Here I mean the market has some structure and relationships between instruments and in so far as prices are consistent with the structure of the market and it’s instruments they’re “efficient,” or perhaps rational. But I think when people say “is the current marker rational or is it exuberant?” they don’t mean consistent / efficient, they mean “aligned with fundamentals in a way that makes rational sense to an economist.”
stocknoob 3y ago
As Buffet said, in the short term the market is a voting machine, in the long run a weighing machine.

kibwen 3y ago

> I don't get why the stock market rallied on a strong jobs report. The stock market is entirely divorced from the economy. All that matters is investor sentiment, which, in some cases, might correlate with the economy, but for the most part it's somewhere between a horoscope and a casino. Don't assume rationality from the stock market.

abirch 3y ago
And don't overweight news headlines with the stock market, the people who are writing them are frequently paid by the click.
tengbretson 3y ago
That doesn't sufficiently explain what's going on though. Sure, at this point its best to not think of stock performance as a proxy for economic health at large, but institutional investors still finance their trips to the casino on credit, so its still reasonable to think that a marker for higher interest rates should bring down investor sentiment.
osigurdson 3y ago
In the short term it is a slot machine, in the long run it is a weighing machine. I think Buffett said that.

eek2121 3y ago

Just an FYI because I see a particular piece of info repeated everywhere. The fed is NOT out to increase unemployment or lower wages. They are out to combat inflation. Making money more expensive to borrow does this. Corporations may choose to lower wages or lay folks off, but they don't have to. The fed could care less. They aren't out to get workers. Note that I'm not defending them, but you are the 4th person to claim that the fed is looking to increase unemployment and decrease wages. If inflation hit zero tomorrow, rate changes would stop. tl;dr - please stop confusing correlation and causation.

treyfitty 3y ago
Fed has a dual mandate. High inflation is often correlated with low unemployment and Vice versa.
lucubratory 3y ago
This is just flatly wrong. The head of the Federal Reserve has been very clear that he considers wage growth to be the principal contributor to inflation, and "combating wage growth" to therefore be an important part of decreasing inflation. What do you think "combating wage growth" means if not lowering wages and increasing unemployment?
- Aunche 3y ago
  >The head of the Federal Reserve has been very clear that he considers wage growth to be the principal contributor to inflation This is not what he said, and despite putting it in quotes, he never said that he was "combatting wage growth". Even if he was, it doesn't matter because regardless of the source of inflation, the only thing that the Fed can do to control it is to raise interest rates. By the time the Fed did so, inflation was already outpacing wage growth, so the narrative that a worker revolution is just around the corner that the Federal Reserve wanted to suppress is completely unfounded.
  - DangitBobby 3y ago
    It's pretty close to what he said. > The chairman of the U.S. Federal Reserve, Jerome Powell, said his goal is “to get wages down.” > In a press conference on May 4, Powell announced that the Fed would be raising interest rates by half a percentage and implementing policies aimed at reducing inflation in the United States, which is at its highest level in 40 years. > According to a transcript of the presser published by the Wall Street Journal, Powell blamed this inflation crisis, which is global, not on the proxy war in Ukraine and Western sanctions on Russia, but rather on U.S. workers supposedly making too much money. > “Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years,” Powell complained. > The Fed’s proposed solution: bring down wages. > There are more job vacancies than there are unemployed people in the United States, as the economy recovers from the Covid-19 pandemic. > Powell claimed this discrepancy between job vacancies and unemployment is due to high wages, which discourage workers from taking bad, low-paying jobs with few benefits, and therefore give them too much power. 1. https://mronline.org/2022/05/26/u-s-federal-reserve-says-its-goal-is-to-get-wages-down/ https://mronline.org/2022/05/26/u-s-federal-reserve-says-its... So yes, apparently workers are getting a bit uppity and it's time to put them back into place.

tunesmith 3y ago

At least the CAPE ratio is below 30... For people whose retirement funds have basically "recovered" from the peak, that's good news for rational markets since CAPE was around 38 back then. Of course, that's just relatively speaking. CAPE is still very high; just going by that there is still room for a major crash.

williamDafoe 3y ago
For regular P/E ratio regression to the mean would mean a P/E of 15x. Right now the regular P/E is 24x. So we could still see a 33% drop in stocks due to all the bubble blowing from the fed. https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio

jfengel 3y ago

"The stock market did X because of Y" is nearly always a fable. It's a bedtime story to help people cope with the fact that most of what the market does on scales shorter than a year is random. The financial need is a million stories, and the headline is only slightly more relevant than the 999,999 other mutually contradictory ones. Don't put any weight on the talking head on the news. He's just talking to hear himself talk.

mech765 3y ago
I think that calling it random is a mischaractetization. It's more of "market movements are caused by a combination of millions of people trading on millions of narratives and data points, and when news breaks, much of the new associated information has already been priced in."
- jfengel 3y ago
  I would call it random in a thermodynamic sense. You can't have all of the relevant information. You know the long term fairly well but the short term is noise. Most supposed jolts are smaller than you imagine, and can disappear before any noticeable effect.

dehrmann 3y ago

I realize the second-order thinking here, I do have to point out you're asking "why the stock market rallied on a strong jobs report." In what bizarro world is this a bad thing?

deleted 3y ago

[deleted]

danielmarkbruce 3y ago

The idea they are focused on reducing employment isn't accurate. They have several goals. One is CPI around 2%, another is full employment, another is moderate long term rates. CPI is down significantly from peak. It's possible we'll get back to 2-3% without a ding on employment and without more interest rate increases. That's what people are likely cheering.

pclmulqdq 3y ago
I think you may be right on the money. I read Bloomberg most days, and there's a through-line in a lot of their reporting on inflation of a "soft landing" to the inflation problem. What exactly this means seems to vary, although it is intended to mean something along the lines of "inflation goes back down without hurting the rest of the economy" for different ideas about what "hurting the economy" means. The stock market seems to like the idea that we may have a "soft landing" scenario on our hands. Still, you may view this as investor optimism.
MuffinFlavored 3y ago
> CPI is down significantly from peak. But that wasn't the news released on Friday. The S&P popped 1.8% upward in 1 day based on a reaction to the job numbers. if job_numbers == good { do_not_get_back_to_200_bps_federal_funds_rate = true; } if do_not_get_back_to_200_bps_federal_funds_rate { reprice_market_valuations(downward); }
- danielmarkbruce 3y ago
  Has a bug.

awaythrow483 3y ago

The stock market is an incoherent junkie standing on the edge of the precipice and trying to get its fix. It's going to shape all news into good news. There is no alternative https://www.spglobal.com/spdji/en/indices/strategy/sp-us-equity-risk-premium-index/#overview https://www.spglobal.com/spdji/en/indices/strategy/sp-us-equ...