The crowd was certainly not expecting a negative market reaction to a weak Bureau of Labor Statistics jobs number on Friday. Expectations were for anywhere from 725,000 to 750,000 but the BLS could only manage to puke up 235,000 “new” jobs for the month of August. The futures’ instantaneous initial reaction was to the upside, but after that the market went into a deep think as it sloshed around for most of the morning.
The prevailing wisdom has been that weak economic data is good for stocks because it keeps the Fed on hold. But the crowd may be missing one simple reality, which is that a weakening economy with the Fed Funds Rate at 0% means that the Fed is out of bullets. If economic data trends continue to the downside, then the Fed may be short on the tools it would otherwise use to address any such economic weakness, much less an outright economic collapse.