Wall Street’s New Logic: Weak Jobs Data Could Be Bullish for Stocks

Markets may soon cheer bad economic news again. According to Morgan Stanley, the U.S. is firmly back in a “good is bad, bad is good” environment—where weaker job data could increase the odds of more Federal Reserve rate cuts and support stock prices.

Ahead of upcoming U.S. jobs reports, Morgan Stanley strategists say a cooling labor market would strengthen the case for additional easing, boosting investor optimism around future earnings growth.

Fed Chair Jerome Powell last week delivered the third consecutive rate cut, citing clear signs of labor market softening. Unemployment has risen for three straight months, and private-sector payrolls fell by 32,000 in November, according to ADP. Powell described the move as “defensive,” aimed at preventing further deterioration in jobs, even as inflation remains above the Fed’s 2% target.

Powell also acknowledged possible data errors, suggesting payroll figures may have been overstated by around 60,000, raising concerns that job growth could be flat—or even negative.

Morgan Stanley’s Michael Wilson believes Powell’s focus on labor data makes jobs the key driver of monetary policy heading into 2026. With delayed government reports expected to show modest payroll growth and a slight uptick in unemployment, the picture points to a slowing—but not collapsing—labor market.

Wilson argues weak jobs numbers may reflect a “rolling recovery”, following years of a rolling recession. He notes that markets, not lagging jobs data, may better reflect economic health, highlighting the S&P 500’s ~13% gain over the past six months.

Not everyone agrees. Former Fed economist Claudia Sahm warns that worsening labor data could signal a recession, not relief—and that aggressive rate cuts might mean the Fed is already behind the curve.

For now, investors appear to be betting that softer data equals easier policy—and higher asset prices.

#FederalReserve #InterestRates #RateCuts #USJobsData #BinanceSquare