In the world of finance, few concepts are as counterintuitive as the idea that negative economic headlines can send the stock market higher.
A weak jobs report, rising unemployment, or slowing hiring should, in theory, be a warning siren. After all, a recession can be devastating for equity investors.
But in today's market, bad economic news is cheered.
That's because it increases the odds that the Federal Reserve will cut interest rates. And the latest jobs numbers are a textbook example of how that counterintuitive dynamic works...
The most recent employment data shows a labor market that is clearly losing momentum.
The U.S. added just 64,000 jobs in November. That's following a net loss of 105,000 jobs in October. You can see the downward trend below...
Meanwhile, the unemployment rate has climbed to its highest level in years. It's currently at 4.6%, up from 4.4% in September.
It's clear the economy is cooling... Workers are finding it harder to get hired, and wage pressures are easing.
For the Fed, those are exactly the conditions that justify easier monetary policy.
In fact, after yesterday's jobs release, the odds of a rate cut in January rose 9 percentage points.
To understand why investors like bad economic news, you must first fully understand interest rates... High interest rates are kryptonite for the stock market.
They make borrowing more expensive for companies, raise mortgage and credit-card costs for consumers, and, most importantly, reduce the present value of future corporate earnings.
When rates are high, investors demand more immediate profits and lower valuations. When rates fall, the opposite happens. Future earnings suddenly look more valuable, growth investments become more attractive, and money flows back into riskier assets.
That's why a red-hot job market can actually be bad for stocks. When hiring is strong and unemployment is low, wages rise and inflation risks linger. The Fed responds by keeping rates higher for longer. And that's something markets hate.
By contrast, a cooling labor market gives the Fed breathing room.
If job growth slows and unemployment ticks up without a surge in inflation – the exact conditions we're seeing today – then policymakers can justify cutting rates to support the economy.
Some of the strongest stock market rallies of the past few decades began during periods of economic weakness, not strength. Plus, when rates are falling, the average monthly return for the S&P 500 Index is 1.7%.
That compares with average monthly S&P 500 returns of 1.3% when rates are flat and negative 0.5% when rates are rising. So it's clear that stocks perform the best when the economy is weakening.
And right now, softer labor data means less pressure on the Fed, a clearer path to rate cuts, and a lower cost of capital across the economy.
None of this means the economy is doomed to slide into a deep recession. The sweet spot for markets is a slowdown that's just sharp enough to prompt rate cuts, but not so severe that corporate earnings collapse. So far, that's exactly what the data suggests.
Growth is cooling. Inflation is contained. And policymakers have room to maneuver.
Investors should be happy.
With all that said, things could still get volatile next year. Marc Chaikin of our corporate affiliate Chaikin Analytics believes timing the markets in 2026 will be a crucial strategy for outperformance.
It's why Marc and his team have developed two new signals... One is a "Flash Stop" sell signal designed specifically to save you from major short-term losses in your portfolio holdings. The second is a "Flash Buy" signal telling you when it's the right time to get into (or back into) specific positions.
These will be powerful tools if the market gets as volatile as Marc expects and if certain stocks are hit harder than others in lightning-fast, sporadic sell-offs. To learn more about how Marc's system could help you in 2026, click here.
What We're Reading...
- Something different: Ancient Greece to Turner versus Constable: seven of the greatest rivalries in art history.
Here's to our health, wealth, and a great retirement,
Jeff Havenstein
December 17, 2025
