“But how can more people working than expected be bad news?” you ask as if we still live in a world that makes sense. First, the world we came from is more fragile than we thought, as the nightmare August jobs report was really what first spooked the markets, and there is a difference between beating expectations and being generally good. The overall labor market environment was already steady but uneasy, and Musk and Trump aren’t making the picture any clearer. We live in Trump’s world now, where everything you buy from China has a 54 percent surcharge to it, and perhaps more if he responds to China’s actual retaliatory tariffs of 34 percent on U.S. goods. The stock market is gapping down hard today and yesterday like we are in the midst of a crisis, but we’re not. What’s happening is functionally a repricing event like in 2022, and in that context, good job reports are bad news for the market, because they prove the economy is not as weak as the sea of red makes it seem.
In 2022, during one of the fastest rate-hike regimes in Fed history, the stock market sold off hard. The Nasdaq fell over 36 percent from its November 2021 peak by October 2022. This was treated as a bear market, and while it doesn’t really matter why your net worth is going down in the end, the reality is that 2022 was a repricing event more than a true bear market like 2008 or the dot-com bust. Calculating the current value of future cash flows (theoretically, literally what you are buying when you buy a stock) is simple: the future cash flow is in the numerator, and it is divided by (1 + the risk-free rate) to the power of time.
ie: $5 million/(1.04^5) = current value of a $5 million cash flow five years from now
To see how big of an effect simply changing the risk-free rate can have, change 1.04 to 1.02 in the equation and see how much the current value of the future cash flow changes. That’s what happened in 2022, but the opposite. Trump’s tariffs are something similar. CNBC commentators and guests said many times yesterday that this huge market sell-off was not a recessionary scare, but a growth scare. This means that the bloodbath in markets you are seeing right now is not pricing in a recession, even though every major firm is calculating a recession to be likelier than it was a week ago. Another way to look at what is happening in the current “growth scare” is that stocks are getting repriced in a world where Trump attached a massive surcharge to every product their business sells. That’s why Apple is getting slammed, because their business is intrinsic to not having to pay a 54 percent markup on the products they make, and their stock price would be much lower if that were the case. The stock market didn’t crash these past two days so much as it finally priced in the reality it refused to accept.
If job growth is strong and the only concern is future corporate profits, then that means the Fed doesn’t have to rush, which is their preferred stance anyway. It’s what Jerome Powell is clearly signaling they will do, which is frustrating many folks with a temperament similar to Trump’s. The stock market being addicted to whatever interest rate the Fed sets is a relatively new phenomenon, and Trump demanding today that Jerome Powell bend the knee, cut interest rates and end the Fed’s independence is just more proof of how a market addicted to sugar-highs has put all its faith in the almighty Fed Funds Rate. The zero-interest rate era radicalized an entire generation of Silicon Valley dipshits and people who bet on them who thought they were geniuses, when in reality it was just free to gamble on even the dumbest ideas imaginable from 2008 to 2021, and zero interest rates made tech’s lofty future cash flows look more valuable than they really were.
But real finance people know that the Fed just pretends to run the world, and the bond market is really where interest rates are born. Last September, right when it became clear that Trump really may win the presidency, the bond market diverged with the Fed Funds Rate, and in January, the Fed faced a challenge. If they cut their typical 25 bps, it would have brought the Fed Funds Rate below short-term risk-free rates. If the Fed had cut in January and interest rates had risen afterwards (which they did a little before plunging over growth scares, which continues to this current market sell-off), they would have repeated the mistake of the 1970s that Jerome Powell and the Fed have been crystal clear that they want to avoid.
Fed Chair Jerome Powell says Trump’s tariffs raise risk of higher inflation and slower growth
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— Semafor (@semafor.com) April 4, 2025 at 12:03 PM
High inflation and slow growth are two of the three elements needed for stagflation, with persistently high unemployment being the third, which was the defining economic feature of the 1970s. We do not have high unemployment yet, but higher unemployment is inevitable given where Musk is driving the country’s largest employer towards, and the “stagflationary shock” that Wall Street is digesting isn’t going away any time soon given that the self-described Tariff Man is reportedly “at the peak of just not giving a f— anymore.” Low growth eventually leads to lower employment–the unemployment rate is a classic lagging indicator–so if it looks fine, then that further confirms that the economy is not in any immediate danger and the Fed can stay the course.
There was hope in the market that this jobs report would actually be really bad, because then it would abate some of the inflationary fears handcuffing the Fed. Instead, it looks like we’re in decent employment shape headed into this shitshow, and the Fed cannot be certain that inflation won’t come ripping back and force them to raise the Fed Funds Rate later to fight the battles of 2022 again. Given today’s employment news and Trump’s demand, he’s basically asking the Fed to put themselves in position to repeat all the worst monetary policy mistakes of the 1970s.
Unfortunately for Trump, the market got bad news. The jobs report was good news, so now everyone is stuck with the unambiguous reality that the entire world is preparing for the United States to drag us into a recession, and there’s no help on the way.
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