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  • The strong September jobs report confirmed that good economic news is still bad news for the stock market.
  • But there is a silver lining to the jobs numbers, according to investment manager Louis Navellier.
  • The continued economic strength “should lead to a better earnings season,” he said.

US stocks plunged on Friday following September’s strong jobs report, with the Nasdaq 100 falling as much as 4%, while the S&P 500 fell nearly 3% at its lows.

Friday’s stock market action once again served as a reminder to investors that good economic news is still bad news for the stock market, as it validates the Federal Reserve’s hawkish policy stance towards interest rates. But there is a positive takeaway from the latest data, according to investment manager Louis Navellier.

“The silver lining to continued economic strength is that it should lead to a better earnings season,” he said on Friday. And investors will likely cheer continued corporate earnings resilience as they prepare for third-quarter results later this month.

The Labor Department’s report showed the US economy added 263,000 new jobs last month, which was ahead of expectations for 255,000 and helped push the unemployment rate back down to 3.5% from 3.7%. 

Some investors are waiting for a drop in earnings expectations before buying stocks, and the strong economic forecasts make for predicting 2023 results more challenging “as the impact of higher interest rates and quantitative tightening ripple through the economy,” Navellier said.

The mix of rising rates and the reduction of the Fed’s $9 trillion balance sheet at a time when the economy remains strong is difficult for investors to navigate because it’s something they “can’t characterise easily with anything from the recent past,” he added.

Navellier expects third-quarter GDP to be positive and that earnings “should not be surprisingly weak.” But there will be some pockets of weakness, as the impact of a strong dollar on international sales and profits will weigh down multinational companies. Additionally, higher interest rates hurt real estate and auto companies as their customers must make bigger monthly payments.

Despite the likely strong third-quarter earnings results, not fighting the Fed remains the winning strategy for investors, and that means “companies with solid earnings in an inflationary, rising interest rate economy will be the only safe ground for the next couple of quarters,” according to Navellier.  

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