Perplexing Headlines | Wisdom, Wealth, and Wellness

Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management. On today’s episode of “Seeking Wisdom, Wealth, and Wellness,” I want to sort of describe what perplexes people.

Unemployment news comes out, and it’s better than expected. More people are employed. Shouldn’t that be good news?

Why is good news bad news and why is bad news good news? Part of it has to do with people pricing and the expectations of how the Federal Reserve is going to react to that news. So because employment is so good and so tight, the unemployment rate is so low, that means that the Federal Reserve has room to tighten conditions, pull back, accelerate quantitative tightening, tightening up money supply, because everybody’s in good shape right now. They’re calibrating the liquidity in the market to try to bring down inflation. And that extra liquidity, if they tighten and unemployment starts ticking up, they don’t want unemployment skyrocket, but they want to calibrate it where it’s at a level where we can tame inflation and keep it at a rate that’s sustainable and in a healthy range for their comfort zone over a long period of time so the economy can grow at a more consistent pace over time, rather than boom, bust, boom, bust. It’s just like threading a needle. You hope they tighten smartly and the markets react negatively because now they’re expecting interest rates to be tightened, money supply to be tightened, and therefore they’re repricing down securities as a forward expectation six to nine months from now. And then when the opposite happens, you’ll see things reverse course.

So that’s a little explainer as to why is good news bad news for markets at times. Just look beyond the headlines.

Have a great day.