As U.S. stock-market investors celebrate soft economic data, is bad news becoming bad news again on Wall Street?

With second-quarter earnings season now largely behind the market, stock investors have been focusing on the latest economic data.

Traders in federal-funds futures, as of Friday, are pricing in an over 90% chance that the Fed will hold its policy interest rate unchanged at its September meeting, and a roughly 35% likelihood that the U.S. central bank will raise interest rates by 25 basis points in November. The data support the narrative of a gradual slowdown in the labor market, but there are no signs that the economy is weakening significantly, according to Richard Flax, chief investment officer at Moneyfarm.“The economic data has not been bad. It is just softening. If you saw really bad economic data, that wouldn’t be taken particularly positively,” Flax said.

Read: Fed rate hikes can end now that U.S. job gains are the size of an economy like Australia’s, says BlackRock Investors should also be alert of the possibility that inflation may accelerate again, according to David Merrell, founder and managing member at TBH Advisors. If investors start to treat bad economic news as bad news for the stock market, it could put pressure on the 2023 stock-market rally, with the S&P 500 SPX up 17.6% since the start of the year and the Nasdaq Composite COMP up 34%.

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