The next day.
After a brutal overnight crash in the New York stock market, Seok-won walked through his home with a warm Americano in one hand, freshly brewed from the espresso machine in the kitchen, while talking on the phone with Landon in New York.
[Concerns over a Federal Reserve rate hike, combined with a wave of sell-offs in tech stocks led by dot-com companies, triggered the worst crash across all three major indexes.]
"The market kept riding high on optimism about the internet revolution, but everyone still had that uneasiness in the back of their mind about how far prices had surged. Yesterday's CPI report amplified that fear and pulled the trigger on the sell-off."
[I see it the same way.]
It wasn't just fears of steep rate hikes due to inflation. Seok-won's interview in The Wall Street Journal had also fueled investor anxiety, but Landon kept that part to himself.
[The Nasdaq plunged 355.49 points, and the Dow dropped 617.78 points, a fall of 5.64 percent. Both indexes recorded a crash comparable to Black Monday in '87.]
Seok-won stepped into the room he used as a trading floor and sat down at the U-shaped desk lined with multiple monitors, phone still at his ear.
[The S&P 500 fell 5.76 percent, and more than half a trillion dollars evaporated from the New York market in a single day.]
Watching the three major index charts sink straight down with long tails, as if falling off a cliff, Seok-won leaned back in his chair and asked:
"How's the mood on Wall Street?"
[Exactly what you'd expect. The worst.]
"Well, the atmosphere was full of rosy projections that the Nasdaq would break 5,000, and then it suddenly nosedived. Of course it's ugly."
[That too, but what's making things worse is what Donovan Price, the Fed Vice Chair, said in his CNBC interview after the crash. He claimed the plunge wasn't caused by fears of rate hikes or warnings of an overheated economy, but by concerns over poor future corporate earnings. That spooked investors even more.]
"So he's hinting they'll raise rates as planned at next month's FOMC meeting, regardless of the crash."
[That's right. And to add to the confusion, President Bill Clinton told reporters that markets go up and down, and that the U.S. economy is strong and healthy in the long run. He brushed off the crash as nothing serious, which only made investors more unsettled.]
Seok-won replied in a steady tone.
"I'm sure the president meant to calm the market, but it ended up sounding like he wasn't going to push back against the Fed's rate hikes. That turned it into bad news."
[When the market's strong, everything looks positive. When sentiment sours, everything flips.]
"True."
When Seok-won nodded, Landon continued.
[Given the situation, it seems unlikely the market will recover before next Thursday's unemployment claims report.]
"In a shaken market, you'll have investors trying to take profits first, and that combined with forced deleveraging from the crash is going to put heavy downward pressure on prices."
Seok-won took another sip of his Americano.
"But there are still plenty of investors who can't let go of their optimism. Some will hold their positions because they think this plunge is only a short-term correction, while others will see the drop as a buying opportunity. That could trigger a rebound — a dead cat bounce."
When he described the rebound as nothing more than a temporary uptick that would quickly collapse again, Landon asked carefully:
[Are you expecting the unemployment claims to come in lower than forecast?]
"With the dot-com boom pushing a massive surge in startups, Silicon Valley can't even find enough IT workers. Even fresh graduates are getting paid tens of thousands of dollars, and companies still say there aren't enough people to hire."
Seok-won took another sip and shrugged.
"The Fed is tightening with rate hikes, but liquidity in the market is still high, and stock gains have fattened Americans' wallets. As the CPI showed, consumers are spending freely. So of course unemployment numbers will come in low."
[I see.]
Now that he'd heard the explanation, Landon found it reasonable.
Because of the 401(k) retirement system, most of the American middle class invested a set amount into the stock market every month. When the market boomed, their retirement balances surged, and naturally, so did their spending.
It was the classic wealth effect.
After years of the dot-com craze and abundant liquidity pushing U.S. stocks to unprecedented heights, middle-class spending had ballooned as well.
"Once spending habits grow, it's not easy to shrink them again. And since the economy is still strong enough that the Fed is worried about inflation, unemployment isn't going to jump."
Seok-won said the unemployment claims would deliver a shock.
Since they were holding short positions, every market drop inflated their gains, and Landon sounded energized.
[If unemployment numbers come in as a shock on top of the CPI, then any hope that the Fed might pause or slow its rate hikes to protect the market will disappear.]
"The moment expectations break, all the risks people were ignoring will surface at once and fear will spread through the market fast."
Landon swallowed hard, lowering his voice.
[Then we'll see another wave of panic selling and the bubble will collapse.]
"Fear spreads faster than anything."
[It's a relief that we cleared our positions early, just as you ordered. I don't even want to imagine what would've happened if we'd held on.]
His tone sounded like someone shivering at the thought, and Seok-won let out a quiet laugh.
"Either way, this is only the beginning. Let's stay calm and keep watching the market."
It was still too early to say the bubble had burst, but Landon was deeply impressed once again by how accurately Seok-won had predicted the market's direction. With full confidence in his voice, he replied:
[Yes. I'll do that.]
After giving a few more instructions and ending the call, Seok-won rested his chin on his hand and murmured as he stared at the three major indexes plunging straight downward.
"If they jump off the sinking ship right now, they might still avoid the massive tsunami that's coming and survive. But that won't be easy."
In fact, the rebound after the crash would send the wrong signal, making it look as if the market was recovering again. It would lure dip buyers straight into a trap like insects falling into a pit.
Seok-won knew he would earn another astronomical profit from this short position, yet he couldn't help thinking about all the people who would lose most of their investment in the process. A bitter expression crossed his face.
***
The New York stock market, which had plunged again after the CPI shock and sent markets around the world into panic, finally began to calm down only after the Nasdaq dropped more than a thousand points.
It wasn't nearly enough to make up for what had been lost, but once the index started rising again, people finally caught their breath. Still, when the day came for the new unemployment claims report, Wall Street fell into tension all over again.
At the huge Lehman Brothers trading floor in Times Square, a place usually filled with ringing phones and loud voices, everyone was silent today. Rows of monitors were tuned to Bloomberg terminals and multiple news channels, all displayed on the massive monitor wall.
They were waiting for the Labor Department's new unemployment claims report, which would be released any moment now.
"Numbers need to be higher this time…"
Rackman, his face noticeably gaunt after days of violent market swings, loosened his tie as he spoke.
Even as he talked, his eyes stayed fixed on the monitor wall showing CNBC and other broadcasts.
Charlie, seated beside him, nervously ran his tongue over his dry lips again and again while staring hard at the Bloomberg terminal on his desk.
"The forecast was two hundred and seventy thousand, right?"
Without turning his head, Rackman kept watching CNBC as he replied:
"Yeah. Still low, but at least if we see unemployment ticking up, inflation fears ease. Then the market might finally catch a breath."
Most traders on Wall Street were in the same position. Charlie, who had wiped out all the profits he'd made and taken a massive loss in the crash, clasped his hands together in desperation.
"Please let it be higher than last time… or at least not lower…"
His legs shook as if trembling from cold, and he whispered the words like a prayer.
Rackman felt the same way. Honestly, everyone on Wall Street was hoping for the same thing.
If unemployment rose, the Fed would finally have a reason to slow its rate hikes, and the market could find a bottom and rebound.
"One minute!"
At someone's shout, Rackman — who had been standing — felt his heart pound violently.
Charlie swallowed hard and stared at his Bloomberg terminal.
Over a hundred people on the trading floor held their breath at the same time, waiting for the unemployment claims number to drop.
And then, moments later, the Bloomberg terminal and the ticker at the bottom of CNBC displayed the breaking numbers:
[April, Week 2: 257,000 ▼ 9,000
4-week average: 262,500 ▼ 5,500]
Instead of rising slightly as expected, claims had actually fallen by nine thousand.
For a moment, the entire trading floor fell into absolute silence.
Rackman froze where he stood, feeling as if his heart had crashed straight down.
A few seconds later, disappointed sighs and groans drifted from all corners of the room.
"Ah…"
"Damn it."
Charlie slammed his fist on the desk, his face twisted with despair.
"Great. This kills any chance of the Fed pausing rate hikes."
The figure — 257,000 — made it painfully clear that the U.S. labor market was still strong. That meant continued wage growth, rising consumer prices, and persistent inflation pressure.
"Don't tell me the Fed is going to look at this and decide to go for a big step at the next FOMC…"
A moment ago, Rackman would have dismissed that idea outright. But the unemployment number was so far from expectations that he couldn't bring himself to respond.
Seeing that, Charlie ran his hand through his hair in frustration and let out a groan.
"This is insane!"
Just then, Team Leader Ripford shouted, clearly on edge.
"When the market opens, dump everything! I don't care if you take a loss — sell it all!"
The traders, who had hoped the market might finally recover, now felt that faint hope collapse. Their faces darkened as they sensed the market was about to plunge off a cliff again.
Rackman stared at the number — 257,000 — displayed beneath the anchor debating the report with a panel. His shoulders sagged as he lowered his head without realizing it.
Today was going to be a long, painful day.
TL/n -
Imagine a country with 100 people in the labor force.
95 people have jobs
5 people don't have jobs but are looking for one
The unemployment rate is:
5 ÷ 100 = 5%
So we say the country has 5% unemployment.
What that means
If next month only 3 people can't find jobs, unemployment becomes 3%.
That tells us the economy is getting stronger.
If later 10 people lose their jobs, unemployment becomes 10%.
That signals the economy is getting weaker.
Why it's useful
Governments, businesses and investors watch these numbers to understand how the economy is doing and what might happen next.
+++
Fewer unemployment claims = stronger job market
When fewer people lose jobs, it suggests the economy is stable.
A strong job market can push the Nasdaq up
Investors think:
People have jobs
People can spend money
Companies (especially tech) can keep growing
So the Nasdaq often reacts positively.
But sometimes it can push the Nasdaq down
If the job market looks too strong, investors worry the Fed might raise interest rates to keep inflation in check.
Higher interest rates hurt tech stocks the most because they rely heavily on future earnings.
So the Nasdaq might fall if the market sees the report as:
"Too strong" → Fed might hike rates
"Stronger than expected" → borrowing might get more expensive
In short
Fewer unemployment claims can help the Nasdaq rise, but if the data is very strong, it can also pull the Nasdaq down because of rate-hike fears.