Stocks fell after January’s bumper jobs report. Which give?

If you think about it, it doesn’t make much sense.

The important points

  • It is possible that positive economic news will cause the value of stocks to decline.
  • Although the latest jobs report was loaded with great news, stock prices fell accordingly.
  • Since the stock market can be extremely volatile, it’s important to stay on track as an investor.

The highly anticipated January jobs report was filled with positive news. Not only did the US economy add 517,000 jobs last month, but the national unemployment rate fell to 3.4%. This is the lowest record since 1969.

All of this should help the public ease some of the recession fears. Finally, if companies have money to hire and jobs are being created, that means we shouldn’t see a drastic drop in consumer spending in the near term. And if consumer spending holds up, we shouldn’t end up with a generalized economic slowdown.

But despite the good news from the labor market, stocks fell afterward. And if you think that doesn’t make sense, then to some extent you’re right.

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Why stocks faltered after a positive jobs report

One would think that any positive economic news would cause stock prices to skyrocket. But this isn’t the first time a favorable jobs report has sent stocks tumbling, and it may not be the last.

The reason stocks fell after January’s jobs report is that an increase in employment suggests that inflation rates will remain high. The reason we are in our current inflationary mess is that consumers have money to spend and there is not enough supply to meet demand. To close this gap, consumer spending must decline.

The only reason the Federal Reserve keeps raising interest rates is to make it more expensive for consumers to borrow money, whether in the form of a personal loan or a credit card. If consumers do not want to face exorbitant interest rates, they can choose to spend less and thus reduce inflation.

But if we have a situation where more than half a million jobs are added to the economy in a single month, that suggests we won’t see a significant decline in general consumer spending. And that’s why stocks plunged today.

Don’t Panic About Market Moves

Whether you opened your brokerage account a few months ago or a few years ago, you’ve probably noticed that the stock market can be very volatile. And that’s why you really shouldn’t be upset by such unexpected drops.

You might have expected stock prices to rise after a positive jobs report. But that’s okay, because if you plan to hold your investments for many years, you’ll have plenty of time to see their value eventually increase.

In fact, one of the best things you can do as an investor is to be patient and commit to holding your stocks for the long term. If you take a long-term approach to investing, you’re less likely to be upset every time the market does something that surprises you.

Overall, it can be frustrating when stocks react badly to positive news. But a good rule to follow as an investor is to expect the unexpected. If you do this and promise to hold onto your shares for many years, you won’t be blown away the next time something similar happens.

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