Bad News is Good News Again: Jobs Cool, Inflation Bites, and the AI Pillar

Here we go again—bad news for the economy is good news for the stock market. At the top of the list of concerns for equity investors has been the threat of further interest rate increases by the Federal Reserve, building on last month’s quarter-point hike. As recent inflation numbers came in hot, the odds of another Fed rate increase rose to 70% before the end of the year.

However, with the latest employment report showing just 29,000 jobs created in September alongside downward revisions to previous monthly reports, the odds of another Fed rate increase have dropped substantially. Translated: it is not good news for the broader economy, but it is great news for the stock market.

The Employment Chill and Rate Expectations

Interest rates dropped following the jobs report in anticipation that there may be a general slowing in economic growth. While employment numbers are historically a lagging indicator for the economy, another critical data point is that the most recently reported inflation numbers remain higher than current wage growth.

With wage growth lagging behind inflation, we are seeing a noticeable drop in personal savings rates, accompanied by greater reliance on credit cards and home equity lines of credit as interest rates head higher.

As far as structural solutions go, elevated tariffs and the ongoing war in Iran continue to weigh on global markets, though one could argue the economy could be worse than it currently is. Right now, the last major pillar holding up the broader economy is the stock market itself.

The AI Pillar and the Rogue Chatbot Anomaly

Driving the market higher is the continued, relentless investment in artificial intelligence. Wall Street remains fixated on the great debate: will AI enable monumental breakthroughs in healthcare, scientific discovery, and finance, or will it destroy us all? Everyone has an opinion, and some people seem to have more than one.

Meanwhile, there are more and more reports of "rogue chatbots" as government investigations and media scrutiny increase.

What is particularly striking is the government's regulatory response, which has largely been to delegate enforcement back to the tech companies themselves. This self-regulatory approach is highly unusual when compared to how the federal government regulates safety and compliance in the airline industry, healthcare, the automotive sector, or the pharmaceutical industry.