While most of America welcomed the news Friday that U.S. unemployment is at a 7-year low, Wall Street panicked.
The Dow tumbled 270 points Friday and the S&P 500 shed 1.4%.
That’s a lot of jitters for a market that just a few days ago was on a massive upswing. On Monday, the tech-heavy Nasdaq crossed 5,000 for the first time since the height of the Dotcom Bubble 15 years ago.
It’s quite a different mood today.
It’s not that investors don’t like good news. More people back at work means more Americans are likely to shop and spend more. That’s a positive for the economy…and stocks.
But there’s just one problem for Wall Street: All this strong news about the economy means the Federal Reserve will likely raise interest rates sooner rather than later.
Investors are nervous about the Fed raising interest rates from historic lows. They’ve been near zero since the financial crisis hit in 2008.
It’s been dubbed a period of “easy money,” and stocks have enjoyed a six-year rise thanks in part to the Fed’s policies. There’s concern about what happens when that easy mfoney gets harder to come by.
“Given updated labor market conditions, we expect the probability of the Fed lifting policy rates in June is now 55%,” wrote BlackRock portfolio manager Rick Rieder.
The U.S. economy added 295,000 jobs in February. That’s the twelfth straight month we’ve added more than 200,000 jobs, which is considered a strong benchmark of growth. The unemployment rate fell to 5.5%, its lowest level since May 2008.
All the signs now point to a June rate increase.
The real question for smart investors is whether all this panic is warranted.
“We strongly suggest that Fed rate normalization will not only be borne well by the economy, but that it may actually hold a positive impact,” Rieder argues.
The Fed has been saying the same thing.
“Our confidence has improved. When we raise rates, it will be a signal of confidence,” Fed chair Janet Yellen said in her recent testimony before Congress.