Stocks slumped in recent days despite surprisingly positive employment reports.
Better-than-expected employment figures issued in recent days by the Labor Department have preceded some slippery days for the stock market, as investors are flinching at the prospect of a thriving American economy and what it could lead to in the near future.
The market shed more than 332 points Tuesday following the release of largely positive job-opening figures for the month of January. The dive effectively erased all gains the market had made so far in 2015 as the Nasdaq, Dow Jones industrial average and Standard & Poor’s 500 index all dipped by more than 1.5 percent.
The idea that January’s 5 million job openings – making it the best month for position availability in 14 years – actually hurt the stock market is seemingly counterintuitive.
A high number of job openings suggests people have flexibility in the labor market, a concept further supported by the nearly 3 million “quits” – or people who left their job – in the month of January.
A high number of quits in a given month generally means people in the workforce are confident about their prospects of landing another job. So aren’t these numbers a good thing for the domestic economy?
[READ: 5 Things to Know About the Economy This Week]
The short answer: Yes, but that’s exactly what’s spooking investors, because an improving economy also portends the first Federal Reserve interest rate hike since 2006.
“In prior Fed tightening cycles, what you see is that in and around Fed rate hikes, the first one at least you get market volatility and usually a down stock market,” says John Canally, a vice president and economist at LPL Financial. “The uncertainties around the Fed are when, how much and how fast. And that is certainly reason for markets to hiccup, but they’re probably being premature.”
The Fed has held interest rates to near-zero levels since the Great Recession, effectively making loans less daunting prospects. But many economists speculate that an interest rate hike is inevitable in the near future, as the job market is doing well, the dollar is strong and home sale values have ticked up.