The over-riding theme among the major business headlines over the weekend was that the stronger than expected employment report caused investors to sell equities as the Fed is now expected to cut rates later rather than sooner. As the chart below shows, the argument is a valid one. Following Friday’s employment report, the odds of a cut before the June meeting declined to 26% from 48% before the meeting.
Now we realize that stocks have historically done well during periods when the Fed was cutting rates, but at the same time, we think that investors may be missing the bigger picture while focusing too much on the minutiae of the market. As an investor in the stock market, which environment would you rather invest your hard earned money in -- an economy on the downswing and facing the risk of a recession, and therefore in need of stimulus from the Fed, or a steadily (albeit modestly) growing economy doing just fine on its own?
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