Why Such Reactions to Economic News?

We just had a Non-Farm Payroll (NFP) event on Friday 2 October 2015. The markets are usually on pins and needs awaiting the result of this vital piece of information. Well the initial reaction was quite sharp to the downside. While the markets made an amazing bounce from that initial drop one way wonder:

Why all of the fuss? What really does this information really and as I mentioned in my last post should we ever be concerned? 

What is the NFP Event All About?

As you probably know the consumer in the US fuels the economy by two-thirds. That means that more people who have jobs are more apt to spend. What happens when people begin to lose their jobs? The household financial belts will have to be tightened.

With less spending now corporate profits are affected. Guess what? The company will now be reporting earnings that may not be in line with expectations and may not justify higher share prices.

Of all the economic events this one probably carries quite the weight. However we have had negative NFP news in the past. Why did the market have such a sharp initial reaction? Because in a bull market good news is generally celebrated with great cheers and bearish news may often be swept under the rug.

However in a technical bear market (as we are currently) it becomes the opposite. The markets will react sharply to negative news and shrug the good news under the rug.

What caused the market to rally on Friday to close positive 200-points while initially being negative by over 250-points? The $INDU had a 459-point swing on Friday!

Because we were at the end of the third quarter for the year.  You know what that means — there will be Window Dressing on the part of the fund managers as they reposition themselves for the next quarter.  So while the NFP event caused an initial drop like a rock reaction the knee jerk bounce was nothing more than an opportunity to buy stocks at a bit of a discount.

So now you know why you should never be concerned  about market fluctuations.  They are how the markets are designed to work and behave.  All we have to do is have a bit of an understanding of the role that some economic events may have on the markets.

Now remember I said to have a bit of an understanding regarding economic news I did not say to totally immerse ourselves in economic news events. Now we are never concerned when in a technical bear market the market goes down and in a technical bullish market the market goes up. That is the technical nature of the markets and one that when we embrace will certainly reward us greatly.