Investors might be tempted to characterize Friday’s jobs report, and the ensuing stock-market reaction, as another example of the “good news is bad news” dynamic: good news for the economy tends to be bad news for the stock market.
But as Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Co., pointed out, this glosses over some important details.
Broadly speaking, the economy looks strong. But pockets of weakness remain in areas that are particularly interest-rate sensitive. The housing market and manufacturing are two notable examples. Also, low- and middle-income consumers are also struggling with higher borrowing costs.
The strong labor reading increases the likelihood that the Federal Reserve will keep interest rates on hold, or possibly even consider an interest-rate hike later this year, or next year, Schutte said. The concern is that, if rates remain higher for longer, these isolated pockets of weakness could spread, hurting the economy and the stock market along with it.
“The market is worried about the potential for continued heightened interest rates impacting companies and consumers, and the potential for growth to restoke inflation in the future,” Schutte told MarketWatch.
Since early December, rising bond yields appear to have weighed on many corners of the U.S. stock market, while a handful of megacap stocks have mostly continued to thrive.
Schutte expects that dynamic will persist for now.
“I wouldn’t be surprised, when the market opens, to see the ‘Magnificent Seven’ doing well, and the rest of the market not doing so well.”
The report also raises the stakes for next week’s inflation report, for both investors and the Fed.
Source: Stock Market Today: Dow futures down 300 points, 30-year Treasury yield touches 5% after
