Payrolls Miss Shows Bad News Still Good for the Stock Market
- November data is first market test since Fed’s hawkish pivot
- Economic surprises, stocks had been positively correlated
A disappointing November payrolls report lifted equities futures as soon as it was released, a reversal of a months-long trend in which investors traded on economic fundamentals rather than prospects for economic stimulus from the Federal Reserve.
Today’s Chart of the Day shows how markets are returning to the pandemic-era trading strategy where investors considered bad economic news as good for stock prices (although shares are now falling on tech weakness.) After an unprecedented amount of asset purchases by the Fed and near-zero interest rates, easy money pushed credit spreads to record lows and the U.S. stock market to record highs. Anything that threatened this dynamic -- say, positive economic data suggesting the economy may not need as much support -- spooked the stock market as investors feared it signaled an end to central bank assistance.