When Good News is Bad News

North Berkeley Wealth Management
5 min readDec 12, 2022


A Friday Reflection from North Berkeley Wealth Management

Modern financial markets are made up of a myriad of different investors ranging from individuals managing personal portfolios to institutional investors managing pensions and corporate reserves. When the headlines distill the investment decisions from these varied investors into an oversimplified paradigm of ‘bullish’ or ‘bearish,’ it can appear as if the market has established a consensus view. In reality, every time a stock is bought or sold, there is someone on the other side of the trade with a different outlook. Differing time horizons, liquidity needs, and risk tolerances all inform investors’ varying decision frameworks.

It can feel counterintuitive when market prices decline after seemingly “good” economic data or policy developments are announced. This is partly due to opportunistic investors attempting to profit from short-term predictions and daily market gyrations, while long-term investors are comfortable with the benefits of a more patient and predictable strategy. Looking forward into 2023, two big macro questions will continue to shape both short-term and long-term trading decisions. The first is how high and how long rates will rise. The second is the accumulated impact of higher rates on the global economy. At present, there is no shortage of conflicting data and pundit perspectives, which likely means that volatility and short-lived rallies and declines will remain in place in the near-term.

Too Many Jobs?

The Labor Department announced that the US economy added 263,000 jobs in November, while the unemployment rate stayed at 3.7%, near a 53-year low. This result exceeded economists’ estimate for 200,000 new jobs and dipped only slightly from the 284,000 jobs gained in the prior month. This seems like good news — but stock prices declined following the report. They have failed to rebound this week as concerns mount about the Fed’s willingness to slow the pace of interest rate hikes in the face of an economy that still seems to be growing steadily.

Investors have navigated a difficult year of price declines, and they are looking for a Goldilocks economic environment before they feel confident in the trajectory of the current market. If the economy keeps humming along with solid job gains and wage growth, inflation may be more difficult to tame. Over the past 12 months, average hourly earnings have increased by 5.1 percent while unemployment has remained historically low.1 But, if unemployment rises too quickly and activity starts to seize up — like we’re seeing in the parts of the housing market currently — then concerns about a more severe recession will also create selling pressure on equities. News that is viewed as too positive or too negative will continue to be a headwind for market stability, particularly until we get more information about how the collective 2022 rate hikes are being absorbed into the economy.

Based on prior recessions and economic declines — which are, albeit imperfect comparisons — the Fed is unlikely to fully pause rate hikes or pivot to rate cuts until we see data reflect negative quarterly job growth. Based on last month’s report, we are not there yet.

China Loosens Restrictions… To Mixed Reaction

China’s recent policy announcements offer another reminder about the varied perspectives of different investors and the difficulty of assigning a ‘good news’ or ‘bad news’ label to new information.

On Wednesday, China announced a significant shift away from its “Zero COVID” policy that had diverged from the strategies of most developed nations. Under the new policy, people with Covid-19 who have mild or no symptoms can quarantine at home, and officials have been instructed to stop launching temporary lockdowns. Testing will no longer be required for “cross-regional migrants.”2 This change should be positive for global economic growth, but some speculate that it may not be good for investors in the short-term. China is a massive consumer of energy and other commodities, and a surge in domestic activity and demand could push global energy prices higher.

There are already signs of revived demand for travel and other services, but China’s fragile healthcare system and low vaccination rates have left the country ill-prepared for a big wave of infections, which could spark labor shortages and make wary consumers even more skittish.3 In the short-term, this shift may keep inflation higher and lead to scattered Covid outbreaks in mainland China, both of which would be negative for equity prices. Over the long-term, though, we see this as a materially positive development for markets and the global economy.

Short–Term Noise

At its core, investing is a decision to buy an asset that you think will increase in value over time and may generate income or dividends along the way. History indicates that this is a reliable strategy for generating wealth and outpacing inflation. That said, market movements can feel chaotic in the short-term, and this noise can make investors question whether historical patterns will continue to hold true.

Until inflation meaningfully declines and the Fed’s terminal rate trajectory becomes clear, we expect market participants will continue parsing the economic tea leaves and trading based on their varied interpretations and objectives. In this environment, volatility is likely to persist, and investors who remain invested will ultimately be compensated when the economy enters a new growth phase.

At North Berkeley, our team works with clients to navigate current uncertainty by affirming short-term liquidity needs and maintaining long-term investment strategies. While this portion of the market cycle can be uncomfortable, it is often when long-term value is created by rebalancing into quality stocks at lower prices and planting the seeds of future growth.

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[1] Employment Situation Summary 12/02/2022 U.S. Bureau of Labor Statistics

[2] Markets optimistic as China eases Covid rules, but experts warn of danger ahead The Guardian

[3] China’s COVID easing seen knocking growth early next year before recovery kicks in Reuters

This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.



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