Stocks Slumped on the Heels of January’s Outstanding Jobs Report. What Gives?

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When you think about it, it doesn’t make a whole lot of sense. 

January’s highly anticipated jobs report was loaded with positive news. Not only did the U.S. economy pick up a whopping 517,000 jobs last month, but the national unemployment level fell to 3.4%. That’s the lowest record on level since 1969.

All of this should help the public ease up a bit on recession fears. After all, if companies have money to hire with and jobs are being added, it means we shouldn’t see a drastic near-term decline in consumer spending. And if consumer spending holds steady, we shouldn’t end up with a broad economic decline on our hands.

But despite the positive labor market news, stocks slumped on the heels of it. And if you’re thinking that doesn’t make any sense, well, you’d be right, to some degree.

Why stocks faltered after a positive jobs report

You’d think that any sort of positive economic news would send stock values soaring. But this isn’t the first time a favorable jobs report has caused stocks to slump, and it may not be the last.

The reason stocks fell following the January jobs report is that an uptick in jobs is reason to believe that inflation levels will remain high. The reason we’re in our current inflation-related mess is that consumers have money to spend, and there’s not enough supply to keep up with demand. For that gap to be bridged, consumer spending needs to decline.

In fact, the whole reason the Federal Reserve keeps raising interest rates is that it wants to make it more expensive for consumers to borrow money, whether in the form of a personal loan or credit card balance. If consumers don’t want to grapple with sky-high interest rates, they can opt to spend less, thereby bringing inflation down.

But when we have a situation where more than half a million jobs are added to the economy in a single month, it lends to the idea that we’re not about to encounter a notable drop in broad consumer spending. And that’s why stocks took a dive today.

Don’t panic over market movement

Whether you’ve had your brokerage account open for a few months or a few years, you’ve probably noticed that the stock market can be very fickle. And that’s why unexpected drops like this really shouldn’t rattle you.

Maybe you expected stock values to climb following a positive jobs report. But it’s okay that they didn’t, because if your plan is to hold onto your investments for many years, you have plenty of time to see their value rise eventually.

In fact, one of the best things you can do as an investor is exercise patience and commit to hanging onto your stocks over a long period of time. If you take a long-term approach to investing, you’ll be less likely to get rattled every time the market does something that surprises you.

All told, it can be frustrating when stocks react poorly to positive news. But a good rule of thumb to follow as an investor is to expect the unexpected. If you do that and pledge to hang onto your stocks for many years, you won’t be thrown for a loop the next time something similar happens.

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