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A quiet week in the stock market but a boisterous jobs report.

A quiet week in the stock market but a boisterous jobs report.

August 09, 2022
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The stock market didn’t make any big waves last week, but the July jobs report sure did. An extremely strong jobs report left many economists, analysts, and investors wondering where we are in this downturn and what’s still to come.

Over the past few months, the most important economic reports have been the jobs and inflation reports, which both greatly affect what interest rate decisions the Fed will make and whether the economy is feeling the effects of the past few rate hikes. The jobs report blew past expectations with the labor market as strong as ever. Although in many ways this is positive news, it was perceived by investors as disconcerting because there are three very different scenarios that investors are postulating for where the economy might be and where it’s headed. It’s good to understand what scenarios investors are anticipating and how they are positioning themselves either offensively or defensively.

Scenario 1 : The economy is currently in a recession, July was a turning point for inflation, and the biggest interest rates are behind us. This scenario has been the catalyst for the summer stock market rally.

Scenario 2 :  The economy is not in a recession yet but will be in one later this year or next, inflation has not been controlled, and there will be larger than anticipated future rate hikes. The strong jobs report gave this scenario more support which means there may be much more uncertainty in the future, which is the primary thing investors dislike.

Scenario 3 : The economy is not in a recession now nor will it be later this year or next. This is the soft-landing scenario that the Fed is aiming for, but the recent jobs report raises doubt because a strong jobs number probably means that inflation is still running too hot.

Given all the uncertainty, why is now a good buying opportunity? It’s important to remember many investors don’t buy on the way down because of concerns that the market will continue to decline, and they don’t buy on the way up because they wanted to get in at the cheaper prices. These are completely natural human tendencies that push investors to indecision, and the industry jokingly calls it Analysis Paralysis. The best solution for this conundrum is to buy incrementally at different prices and at different times. I perceive any dips in the current market as good buying opportunities to build long-term investment positions. Let’s discuss these buying opportunities further.

Photograph by: Artem Beliaikin on Unsplash

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