Stocks plunge on strong hiring

The Dow Jones Industrial Index, the most widely-watched stock market indicator, plunged by 278 points today, after the Labor Department’s February jobs report showed unexpectedly strong job creation, with nearly 300,000 workers hired last month.

Why are investors reacting perversely to a strenghening economy? Simple. For 5 years now, ever since the stock market bottomed in March 2009 following America’s worst economic crisis since the 1930s, the stock market has been inflated by government intervention in financial markets by the Federal Reserve in the form of “quantitative easing” (QE), which ended last October (the stock market slid then, too) and “zero interest rate policy” (ZIRP), which will begin winding down when the Fed starts raising interest rates sometime this year.

deflating-hot-air-balloonStrong hiring shrinks the pool of unemployed workers, putting upward pressure on wages, resulting in inflation, which steers Fed policy toward higher interest rates. Wall Street has been expecting for some time the Fed will gradually end its policy of keeping interest rates artificially low as the economy returns to normal, but with that time now approaching, some of the air pumped into stock prices is hissing out of the balloon.

That’s how capitalism works, folks. When the capitalists no longer get government largesse, the financial markets throw a hissy fit. Then the balloon returns to Mother Earth.

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