Hey Reader

The U.S. added only 29,000 jobs in September. The Nasdaq rose 1.2% after the report came out.

Let that marinate for a minute.

Imagine telling someone who just lost their job that the market rose because hiring was weaker than expected. That feels cold. And it confirms a belief a lot of people already hold. That Wall Street cares more about stock prices than whether everyday people can find work.

That reaction isn’t coming from nowhere. Companies sometimes announce layoffs and see their stock prices rise because investors expect lower costs and better profits. The incentives in financial markets don’t always move in the same direction as the interests of workers and families. That’s worth acknowledging before unpacking the recent job numbers.

Although it’s not quite what happened this time.

To understand the market’s reaction, let’s first go back a few weeks. The Federal Reserve raised interest rates in September because inflation remained too high. Before the current jobs report, another interest rate hike in October was a possibility, but the weak job numbers suggested the economy and labor market may already be slowing on their own. If that’s true, the Feds may not need to raise rates again immediately. And lower rate expectations tend to lead to an increase in stock prices, particularly in technology and growth stocks.

Investors weren’t celebrating fewer jobs. They were recalculating the odds of another rate increase.

The contrast from just a few weeks earlier makes this even clearer. On September 4th markets fell after a stronger than expected jobs report showed the economy added 162,000 jobs, well above expectations. More jobs meant more pressure on the Fed to keep hiking rates. Stocks dropped. Then on October 2nd the opposite happened. Weaker jobs meant less rate pressure. Stocks rose. The same logic, running in both directions within the same time frame.

This brings me to my main point.

The market isn’t a person. It doesn’t have feelings or a moral position on whether workers should be doing well. It is millions of participants constantly repricing investments based on new information. It isn’t rooting for workers to succeed or fail.

But don’t let everyone involved off the hook either. The market itself has no emotions. The people and institutions participating in it respond to incentives. Those incentives often prioritize returns and profits. And those priorities don’t always align with what’s good for workers and families.

Saying the market isn’t rooting against workers doesn’t mean the market reflects workers interests. It means the market is measuring something different.

Think about what happens when a star player gets injured before a big game. The betting line immediately shifts in the other team’s favor. The line doesn’t celebrate the injury. It’s adjusting the expected outcome based on new information. Some bettors rushing to take advantage of the new odds probably care more about winning their bet than what the injury means for the player. The stock market works the same way. Some investors care more about returns than the people affected by an economic slowdown. But that’s about the desires of market participants, not an emotion held by the market itself.

Here’s the other thing worth understanding. Bad news for the economy cannot remain good news for markets forever.

A little economic weakness may reduce rate pressure. Too much weakness eventually threatens consumer spending, company revenue, and profits. At that point lower rates may not be enough to keep stocks rising. The market may welcome signs that the economy is cooling. It won’t welcome an economy that freezes.

This is another version of the two economies I’ve written about before. The same news can land very differently depending on whether you’re watching your portfolio, searching for work, or trying to keep your household budget together. And some of us are doing all 3 simultaneously. Multiple realities can exist at the same time.

The stock market can be working exactly as designed while still feeling completely disconnected from real life. Whether that makes it heartless depends on who you ask. What it does make it is a poor scorecard for how everyday people are doing.

— Stock Savvy Dad
​Invest smarter, build wealth, be a savvy dad.