The latest employment data just came out, and the state of the US economy is a bit strange — it looks quite sick, yet Wall Street is celebrating. Why? Because the market is convinced that the Federal Reserve is about to start easing monetary policy.

**How bad is the employment data?**

In November, 64,000 new jobs were added, which sounds decent, but the real shocker is what happened afterward. The October data was revised downward, with a cut of 105,000 jobs, the largest monthly decline since the end of 2020. In other words, the US labor market has been shrinking over the past two months, a clear sign of economic contraction.

**The worse the economy, the more the stock market rallies?**

Normally, if the economy is weak, stocks should fall. But now, the logic is reversed. The market’s thinking is straightforward: since the economy is so poor, the Federal Reserve definitely won’t dare to keep interest rates high, and instead must cut rates urgently to inject liquidity. The futures market has already started betting, with the probability of a rate cut in January rising to 25%. As long as there’s a chance of easing, the stock market dares to push higher.

**Why hasn’t the 4.6% unemployment rate caused a crash?**

A 4.6% unemployment rate usually triggers warning signals of an impending recession. But this time, it didn’t cause widespread panic. The key is that the labor force participation rate is actually rising. Simply put, more people are unemployed, but those who had given up are now re-entering the job market. This gives the Federal Reserve a glimmer of hope — the labor market isn’t completely broken yet.

**The current market logic is so simple:** Economic decline → Fed forced to cut rates → Asset prices rise. The US economy is walking a tightrope on a hard landing, while Wall Street bets that the Fed will flood the market with liquidity to prevent a crash.