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Market Comment: Good News, Bad News

What are we talking about? Sometimes we’re simple creatures in a binary world. Usually, good news is….good. If the economy is strong, that bodes well for households, for companies and, valuations caveats to one side, for stock prices.

But it’s not always that simple. Sometimes, good news is bad. If you’re concerned about inflation, for instance, or overheating, then strong macro data translates into higher interest rates, slower growth, weaker earnings etc.

And in that context, we saw a slew of employment data from the US last Friday. Unemployment was lower than expected, job creation a bit higher – positive for households, less so for financial markets focused on interest rates. The chart below shows the performance of S&P 500 futures on Thursday and Friday. The reaction to the news (at 8.30am Eastern time on Friday) is pretty clear.

What does it mean? It’s easy to get too excited about simple rules, but at the moment, we think financial markets are focused on inflation and central bank policy (maybe they always are). The sooner inflation slows, the sooner Central Banks will finish tightening – or so the argument goes (leaving aside the question of whether inflation is currently driven by demand or supply). So, very crudely, a resilient economy, as we’re currently seeing in US employment, delays the point at which the US Fed finishes tightening – and that’s currently disappointing for risky assets

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Written by Richard Flax


Richard is the Chief Investment Officer at Moneyfarm. He joined the company in 2016. He is responsible for all aspects of portfolio management and portfolio construction. Prior to joining Moneyfarm, Richard worked in London as an equity analyst and portfolio manager at PIMCO and Goldman Sachs Asset Management, and as a fixed income analyst at Fleming Asset Management. Richard began his career in finance in the mid-1990s in the global economics team at Morgan Stanley in New York. He has a BA from Cambridge University in History, an MA from Johns Hopkins University in International Relations and Economics, and an MBA from Columbia University Graduate School of Business. He is a CFA charterholder.

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