Amazingly Strong Job Market and Strong Market Bounce

Dear Traders,

The US job market is strong, and everyone was surprised by today’s report that US companies are still creating jobs. While this led the market to gap down over 1.5%, it is slowly recovering as I am writing this newsletter. It’s a crazy situation. There’s a good report and the market gaps down! If you want to know why, read on. Please also watch the recap that Brian and I posted here. I had an incredible day on AMD. I also moved some of my positions to leveraged SPY and QQQ. 50% is still in SPY.

Many people wonder what is happening to the market. Why does some good news about employment cause the market to drop? Is the news not good for both the economy and the stock market?

The answer is found in the US central banking system, the Federal Reserve, and interest rates. The Federal Reserve’s current focus is on lowering inflation. As long as the job market is strong, they will stay very “hawkish” on interest rates, meaning that they will increase the rate even more aggressively. That means money is not cheap anymore and the cost of capital will go higher. A bad economy forces them to be less aggressive, to even lower the interest rate or be “dovish”, so to speak. Thus, reaction in the market to this news is twofold. On one side, a strong market means a strong economy, and on the other side, Wall Street likes lower interest rates for growth. Accordingly, there is a mixed reaction from the market to the news – both good and bad.

Recession or inflation? That is a good question. Which one is the lesser of two evils? Do you prefer to have a bit higher inflation or a controlled inflation but also a recession where your neighbors are losing their jobs and the economy is slowing down? The US central bank has a hard choice to make. No one wants both, especially in an election year.

What do you think? Please reply to this email and share your thoughts and opinions with me.

We are looking for opinion columnists for our Trading Terminal Opinion page. Perhaps we will publish your opinion!

To your success,
Andrew

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