To the president of the United States – not a man known for his complexity or sophisticated understanding – it was simple.
“With a great Jobs report, like just announced, stocks should go up, not down.”
To be fair to the president, he seemed to have a point. New data released on Friday showed that the US economy added 172,000 jobs in May – more than double the forecasts ahead of time. This was yet another sign that the American economy remains in robust health, even despite various self-inflicted wounds in recent months.
Sadly for Donald Trump, the real world isn’t always straightforward. The American S&P 500 stock index closed down 2.6% on Friday, its worst single day since October.
So what happened – why did Friday’s response to the jobs seem so freaky? Put simply, with inflation already elevated thanks to the effects of the Iran war, the strong jobs figures added to investors’ sense that the central bank shouldn’t – and won’t – cut interest rates anytime soon. In fact, in the wake of the data, markets actually began pricing one rate increase in the US by the end of the year.
And if there’s one thing we know markets typically dislike, it’s rising borrowing costs. Higher rates mean assets look less attractive relative to cash, consumers have less money to spare and businesses make lower profits when they borrow to invest. It goes without saying that none of these effects are good.
Our continuing confidence is bolstered by the fact that some inflation data suggests a less stark outlook than the measures on which headlines are focused. Further, there are no meaningful signs of system-wide risk in corporate debt markets and, with the AI data centre build-out boosting the manufacturing sector, no near-term prospect of a US recession.
Occasional reversals and readjustments of the type we saw on Friday are part and parcel of investing. While we remain vigilant, we are just as keen to keep our eyes out for chances to take advantage of any opportunities such volatility brings.
In the long term, that’s how you make a freaky Friday into a fruitful one.
What a world
How transferable is talent? Does being a superstar in one field mean you can reliably take those skills and apply them to something else?
These are questions that executives at Ferrari may be wishing they had given more consideration. For their first-ever electric vehicle, the Luce, they decided to hire the design agency of Jony Ive, one of the leading lights behind the sleek designs of Apple products including the iPhone.
Yet the look of the Luce was greeted with bemusement, meme mockery and an intra-day stock price decline of 8%. YouGov reports minus 22 net approval for the car among Brits. Is the hate justified? You decide.
