Markets delivered a healthy dose of reality to investors on Friday with the release of the latest monthly US jobs report. More details below, but essentially it was a repeat of ‘good news equals bad news’ in relation to both the unemployment rate and the number of jobs created. Whilst one data point does not make a trend, there is no doubt that Friday’s release further distorts the Fed’s already blurry outlook.
When Jerome Powell spoke at the Brookings Institution on Wednesday, he struck a more dovish tone than expected. Markets were suitably enthused. However, what markets crave more than anything is certainty, and a Fed that doesn’t seem 100% sure of itself is unlikely to calm markets. Interestingly, Deutsche Bank reported last week that, of the 12 post-war hiking cycles, this one has hit equities the hardest.
Individual investors don’t (and Institutional investors rarely do) get to influence market direction. A mantra that we have communicated consistently in recent years is that of ‘Don’t Fight the Fed’. With that in mind, whilst individual data points will continue to move markets in the short term, the relationship between inflation, interest rates, and economic growth is what is of concern to long term investors.
As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.