Good News as Bad News, Bad News as Good News

February 22, 2023

By Tim Courtney, Chief Investment Officer


The January U.S. jobs report offered some eye-opening data for investors, with additions to nonfarm payrolls vastly exceeding analyst estimates (517,000 vs. 187,000) and the unemployment rate (3.4%) falling to its lowest level since May 1969.1

This positive development may be a blip that eventually gets overshadowed by other weaker data. But this would at least seem to be temporary good news, indicating that the economy may not be weakening to the degree some have feared.2 But the market viewed it as bad news.3

Why? Because the market is much more concerned about interest rates than recession.   It negatively views developments that might lead the Federal Reserve to increase rates or at least keep them higher for longer. Strong economic news would do that. Conversely, if news seems bad — such as weakening spending and falling production  — the market has been viewing that positively because of the potential for the Fed to decrease rates in response.

Ultimately, some investors are cheering for lower rates as they hope a 2021-style party breaks out. Some of the same speculative assets that zoomed in 2021 (e.g., Bitcoin) did so again in January.4 Low rates do mean cheaper borrowing and higher asset values – at least for a time. We saw January’s strong returns as the market expressing its expectation that rates would peak and begin falling in the next few quarters.

Unfortunately, the market forgot the reason why rates had to rise in the first place: high inflation. While households have consistently expressed their concerns about inflation over the last year and a half in surveys, the market has just as consistently been unconcerned (and so far wrong) about lasting inflation.  The market has only cared about the interest rates.

Overall, the economy has experienced modest slowing in recent months5 and, while spending has decreased slightly, it remains relatively robust.6 We would suggest that some type of slowdown actually needed to happen, following so many years of stimulative policies that unnaturally amplified spending and growth.7

We hope the Federal Reserve maintains rates higher for longer. This increases our expected returns on bonds, provides a more stable foundation for stock valuations, and should have a positive effect on inflation. If they do, the question will be if the higher rates cause a hard or soft landing. One of the reasons the market should see the recent employment data as good news is because the chances of a soft landing — where we either avoid a recession entirely or experience only a mild one — are increased by continuing strength in labor markets.

From a day-to-day standpoint, the market is still in a phase of viewing good news as bad news, and vice versa due to interest rates. For now, what it sees as bad news (strength and higher rates) we’ll take as good news as markets and the economy re-adjust to the gravity of higher rates. If you have any questions, please contact your Exencial advisor.




  1. CNBC (2/5/23) — January’s U.S. jobs reports was stunningly good
  2. Business Insider (1/16/23) — Economists say there is a 61% likelihood for a recession in 2023, and businesses are preparing
  3. CNBC (2/3/23) — Stocks fall on Friday, but S&P 500 notches winning week as strong 2023 continues
  4. CNBC (1/17/23) — New Year, new rally: Why bitcoin is up 28% this month after a tumultuous 2022
  5. Institute for Supply Management (2/8/23) — ISM Report on business
  6. Bureau of Economic Analysis (2/8/23) — Consumer spending
  7. Investopedia (11/23/22) — U.S. COVID-19 stimulus and relief



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