Mixed Signals

Hello, and happy Wednesday.

I try not to get political on here but the new Taylor Swift album was about as good as Chipotle’s queso… which tastes incredibly mid.

This is not investment advice and is intended for entertainment purposes only.

Mixed Signals

On Friday, May 3rd, the S&P 500 surged 1.26% after a report of higher unemployment and lower wage growth than expected was announced.

So bad news can be good for the stock market? The math ain’t mathin’.

Why did Friday’s job report catalyze the biggest jump in stock prices over a three-day period since November of 2023?

Bad economic news = stock prices went up

Huh?????

How does Bad News for employment = Good news for Stonks?

I want to address this question because in economics you often see these inverse relationships that don’t make sense to the layman's eye.

So let’s get into it.

The last 2 years have brought a challenging interest rate environment, to say the least. Currently, Interest rates are at a 23-year high.

Broadly speaking, this means that the Federal Reserve kept interest rates high which makes it more expensive to borrow money and operate a business.

This means businesses are THIRSTY for cash. Just like a 22-year-old Courtney hankering for a light-blue Gatorade on a Saturday morning after a wine night with the girls.

So why doesn’t the Fed (shortened Federal Reserve who “control” the money supply) just lower rates?

Well, inflation is running HOT like a Texas August and they want that to cool off because continued high inflation growth is a net bad for economies.

The Indicators

Friday’s nonfarm payroll wages and United States Wage figures came in BELOW expected for the month which is a signal that the economy is cooling.

We also saw from the Bureau of Labor Statistics that the unemployment rate crept to 3.9%, versus 3.8% in the previous month… another cooling indicator.

Because when the economy is hot and inflation is rising, the Fed has to cool it off. That’s just part of the job.

The Fed can stop trying to cool it off when things start reflecting a market that is contracting (lower wage growth, rising unemployment, all that jazz.) These metrics indicate that the cooling mechanisms are working and the Feb can lower interest rates.

So why did this news cause stocks to jump?

A cooling market means the Fed may FINALLY lower interest rates.

Which means businesses will be able to borrow money more affordably.

and thus:

BUILD BABY BUILD.

Market Tidbits

• Substitute teacher playing a movie in class energy: Here is a tweet about 12 movies that will teach you more about finance than a $100,000 degree

• Danger-ade: Panera Bread sold dangerously caffeinated lemonades, “Charged Sips,” that caused multiple consumer cardiac arrests. They will now discontinue selling them in-store. Fun fact, one time in Boulder Colorado I drank 4 of these in a row.

• TikTok Drama: ByteDance is biting back: they sued the United States Federal Court to block a law that recently passed which bans TikTok in the U.S. unless ByteDance separates from the entity.

Meme of the Week

Credit @charliewrich

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