Why a piece of good news crashed the US stock market

The topic in brief

  • US unemployment fell to 3.5% in September, and new hires were more than expected
  • Wall Street indices plunged again on Friday, with the tech Nasdaq the biggest loser – 3.9%
  • Inflation data will be released next week, which will provide further clarity on the Fed’s intentions

Usually, good economic news is a catalyst for stock markets to rise – they give investors optimism that things are going well. Which incentivizes them to invest more money in company shares.

However, markets are fond of reminding of their irrational nature. They did it on Friday too, when seemingly better-than-expected news on the US labor market sent share prices of blue-chip companies crashing – some by 4 to 6% (Intel, Amazon, Tesla, Microsoft). Indexes closed down 3.9% on the tech-dominated Nasdaq, while the S&P500 and Dow Jones 30 lost 2.8% and 2.1%, respectively.

The reason was the unemployment data for September – it unexpectedly fell to 3.5%, while everyone expected it to remain at the level of 3.7%. New jobs for the month came in at 265,000, against expectations of 250,000. While new job creation is now well below the number a year ago, when it was over 600,000 for the month, the labor market is still showing signs of strength. Which worries investors. Low unemployment and high levels of new hires will give the US Federal Reserve more confidence to continue aggressively raising interest rates to tame inflation without causing significant shocks to household spending.

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