Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management and on today’s episode of “Seeking Wisdom, Wealth, and Wellness,” I want to talk about explaining headlines and inverse reactions.
What I mean is that employment, jobs, and payrolls are up, meaning more people are being hired and wages are up. These are all seemingly positive for the population, yet the financial markets look at that news negatively and start selling off.
Why would that be? Let’s talk about it.
Two facts.
- It means labor is tight and there’s pressure on wages, which means profits and margins might be shrinking a bit.
- When things get too hot, the Federal Reserve tightens the money supply. Tightening things, pulling back the amount of money and liquidity in the economy, and hence, conditions can only go in the opposite direction where it eases up a little bit. You don’t want things too hot or too cold. You’re trying to find the right pace so that things don’t get heated up and out of control.
So that’s a quick explanation of why good news could bode for negative markets and bad news may bode well for financial markets in the short term. In the long term—at the end of the day–cheap, small, profitable companies, being persistent, and sustainable over a long period of time, work over time—not all the time.
Have a great day.
