Strong economies don't always create stronger markets.

This week was a reminder of why.

Economic data softened.

Hiring slowed.

Nonfarm payrolls came in well below expectations.

Treasury yields fell.

Markets reduced expectations for further Federal Reserve tightening.

Under normal conditions, weaker employment data would be viewed as a negative for equities.

Instead, most stocks moved higher.

Why?

Because markets don't react to economic data in isolation.

They react to what that data means for monetary policy.

This week's employment report didn't signal a collapsing economy.

It signalled an economy that may be cooling just enough to reduce inflation without falling into recession.

That's a very different outcome.

The result was clear.

The Dow Jones reached another record high.

Most companies within the S&P 500 advanced.

The dollar weakened.

Bond prices rose.

Yet one part of the market struggled.

Semiconductor stocks sold off sharply, preventing the S&P 500 from fully reflecting the strength beneath the surface.

That's the thesis.

Markets aren't rewarding weaker growth.

They're rewarding the possibility of a soft landing.

As long as economic data weakens gradually rather than abruptly, investors are likely to view softer numbers as positive because they reduce pressure on the Federal Reserve to tighten policy further.

"Is the economy slowing?"

"Is it slowing by just the right amount?"

That's the difference between reading the data and understanding how markets are likely to interpret it.

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