The Market Wants Bad Economic News. Here's Why.

Today’s message is going to be very short, sweet, and direct to the point.

The Fed chairman, Kevin Warsh, came out with his Fed funds meeting minutes. That’s a tongue twister. But you have to remember that interest rates are what you should be focused on when you’re looking at the stock market today.

Earnings are going to be very, very important as they start to come out for the second quarter. But immediately, you can look and see the direction of interest rates because that has a lot to do with earnings, forecasted earnings, and valuations on stocks.

The Fed funds meeting notes showed that the Fed governors are very concerned about the labor markets.

We had job numbers that came out that were dreadful. There were only 58,000 new jobs in the month of July, which was really, really bad numbers.

Then you also have inflation, which is sticky. You want inflation numbers to come lower, and they’re not coming as low as quickly as possible.

All of that has a lot to do with the oil markets.

We’re not concerned about supply of oil coming out of the ground. We’re more concerned with oil getting to the intended locations that it’s supposed to.

So when you look at all of that, you’re probably not going to see an interest rate cut anytime soon. You’re probably going to see interest rates remain where they are.

But you’re also hearing, even from Goldman Sachs, that you’re going to see an interest rate rise because of the strong numbers that you’re hearing about.

So you have two different things happening.

You have really bad job numbers, which would then make interest rates go lower, which then makes the stock market go higher.

But then you have sticky inflation, which would then make interest rates go higher to slow the economy down.

So you kind of have stagflation, or at least two parts of stagflation.

The other part of stagflation is the growth of the economy. We’re going to start seeing something about that in the next couple of weeks when the GDP numbers come out.

Stagflation is a terrible situation for the world to be in.

The United States is the world’s Pied Piper. As the United States goes, goes the rest of the world.

At the same time, you have to be concerned about the labor market because that 58,000 number that was printed was really bad.

Again, valuations on stocks have a lot to do with where interest rates are going.

If there’s ever a hint to where rates are going, and you see really slow, bad numbers for the economy, you’re going to see stocks go higher, which doesn’t make a lot of sense.

But it does make sense when you understand that if there are bad numbers, you’re probably going to see more of a leaning toward interest rates being cut than going higher.

If you see the economy doing well, that’s going to be bad for the stock market because you’re probably going to see rates remain where they’re at or even go higher.

That’s the way to look at the markets right now.

If you want any analysis done on your portfolio, feel free to give me a call or send me an email. I’ll be happy to do it complimentary.

Again, we’re here to expose what is going on in your existing portfolio and whether it’s set up properly or not.

Thank you.

Watch the Market Update

Speak with Ed

Chapwood Investments, LLC, is a partner of Ethos Financial Group, LLC, a Securities and Exchange Commission-registered investment advisor. No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this article constitutes an opinion on the suitability of any security. The information and data presented here were obtained from sources deemed reliable, but their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this article. Guest contributors do not receive compensation and do not provide endorsements or testimonials. Past performance is not indicative of future results.