Market Update | May 7, 2024

When is bad news good news? The answer to this trick question: Often in the stock markets! As stock market participants continually digest economic news, it’s not unusual for weak economic reports to bolster market values, at least in the short run. 

Here’s an example. This past Friday, May 3, stocks jumped higher, in part because of lackluster economic data released on Friday. Although the economic indicators were weaker than expectations, investors welcomed them because the data implied cooling inflation… and therefore a higher likelihood of interest rate decreases this year.

Friday’s nonfarm payrolls report showed 175,000 jobs gained in April, below the 240,000 jobs economists expected. The unemployment rate edged up to 3.9%, versus 3.8% in the prior month. Wage figures also came in less than expected.

While these may sound like disappointing updates, the markets interpreted them to be one point towards the Federal Reserve’s calculus to lower interest rates. All else being equal, lower interest rates have been a tailwind to stock valuations in recent years. The markets on Friday looked ahead to anticipate what’s to come.

We don’t make investing decisions just on one month’s data. Rather, since unpredictable economic news affects markets in the short run, we feel it’s better to “remove the trick question.” Sticking to a long-term strategy that’s based on your goals is a way to do that.

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