Strong Jobs Data is NOT Good for the Stock Market?

Tom Gentile

Posted in
Big Picture

By: Tom Gentile
January 5th, 2023

2 mins read

One would think people getting jobs and wages increasing would be a good thing for the economy, since it shows people are working, which could spur on consumer confidence with people willing to pay more for goods and services because they have a job to back up those purchases with income from that job continuing to come in.

So why did the market go down 300 points or so today on stronger than expected ADP private payrolls data?

The data showed employers added 235,000 jobs in December along with wages also increasing.  A bit later jobless came in lighter than expected.  All this points to the labor market remaining hot.

A Hot Labor Market

When unemployment is low that means more folks are back to work, sure, but then we have the risk of inflation, which is where goods and services are rising in cost or all the while the value of money is decreasing:  look at the chart on my weekly newsletter of the UUP, (my representation of the US Dollar).

We are 40-yr highs for inflation and the US Dollar has been in decline for months.

With more jobs being created as inflation continues to grow and with the US dollar declining prices on goods and services increase due to a ) supply and demand and b) so companies can bring in revenue to offset the extra wages they have to pay these new workers, whose compensation potentially cuts in to their bottom-line profitability. 

To combat a hot labor market and to try and cool down job and wage growth, the central bank, the Fed, will keep raising interest rates to stave off inflation; so much so they risk pushing our economy into a recession.

Non-farm Payroll Report Friday January 6

Economists estimate that U.S. employers added around 200,000 jobs in December.  That would show a moderate slowdown from gains the prior month.

If we get a higher number that would be deemed further bad news and signal to the Fed that the labor market is still strong. Also, investors don’t want to see gains in wage growth, because this could bring about even higher inflation.

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