This week’s economic data could be ‘hugely bullish’ for stocks

By Investor Empires On Sep 30, 2024

Friday’s monthly jobs report, along with a slew of other economic data scheduled for release this week, will likely push the stock market higher if it surprises to the upside.

That’s because any evidence that the Fed is cutting interest rates amid an ideal backdrop of continued economic growth, a strong labor market, and easing inflation would be a “very bullish” outcome for stocks, Citi said. said Stuart Kaiser, Head of US Equity Trading Strategy.

“It’s all about the growth side of the economy, and it’s all about the consumer,” Kaiser told Yahoo Finance. “Any data that suggests consumer spending is still holding up and you don’t see the weakness that people are worried about, I think that’s all going to be positive for the stock markets.”

Along with labor market updates that include ADP’s payroll data, monthly job openings and labor turnover survey, new releases Tuesday and Thursday from the Institute for Supply Chain Management on activity in the manufacturing and service sectors are also expected to attract investors’ attention. Economists expect that activity in the manufacturing sector in September remained in contraction while services activity was relatively flat from the previous month.

On Friday, the September jobs report is expected to show 130,000 nonfarm jobs added to the US economy with the unemployment rate holding steady at 4.2%, according to data from Bloomberg. In August, the US economy added 142,000 jobs while the unemployment rate fell to 4.2%.

Jobs data and manufacturing data were already on the weaker side in months, Osung Kwon, an equity and quantitative strategist at Bank of America Securities, wrote in a note to clients on Monday. This means that some weakness is likely to be expected and only large errors in forecasts could “reignite recession fears.”

“On the other hand, strong imprints can enhance confidence in a soft landing,” Kwon wrote.

Mike Wilson, chief investment officer at Morgan Stanley, wrote in a note to clients Sunday evening that he sees labor market data as important “more than anything else” over the next three to six months. For a cyclical turnover to occur in the stock market, where economically sensitive areas outperform, labor data would likely have to be better than currently expected, Wilson wrote.

“We believe the unemployment rate probably needs to decline alongside consensus payroll gains, with no material negative revisions to prior months,” Wilson wrote.

At the heart of this position on the part of strategists is the market’s need for evidence that the Fed is not cutting interest rates because it is concerned about the path of the US economy.

When the Fed opted for a larger rate cut on September 18, investors accepted that the Fed was cutting its benchmark interest rate by half a percentage point to maintain a currently healthy economy rather than provide aid to a faltering economy.

Read more: What a Fed rate cut means for bank accounts, CDs, loans and credit cards

Stocks then rushed to new highs. More evidence that the Fed is cutting interest rates amid this ideal backdrop would be a bullish outcome for stocks, according to Citi Kaiser. But the data released this week still poses a major risk to that narrative.

“If it turns out that they started cutting interest rates because they are legitimately concerned about weakness in the labor market, the interest rate cuts will not be enough to help stocks in this situation, and you will trade lower,” Kaiser said. . “So the reason behind (the Fed cut) is important here. Payrolls will help answer that.”