Source: Zhitong Finance

Bank of America strategist Michael Hartnett said that the weak non-farm payrolls report would be a sign of stagflation, increasing the possibility of a sell-off in the stock market.

According to data released on Friday, the US non-farm payrolls increased by 175,000 in April, far below market expectations of 243,000; the unemployment rate rose to 3.9%, higher than market expectations of 3.8%; average hourly wage increased 3.9% year on year and 0.2% month-on-month, all lower than market expectations.

According to Michael Hartnett, recent US economic data has been “stagnating,” that is, economic growth is slowing, while inflation and labor costs remain high.

Michael Hartnett said that if the number of non-farm payrolls increased by less than 125,000 in April and the average hourly wage increased by more than 0.4% month-on-month, that would mean the risk of stagflation, while if the non-farm payrolls increased by more than 225,000 and the average hourly wage increased by less than 0.2% month-on-month, it would mean a “golden girl” scenario of “risk return.”

Michael Hartnett believes that the market is in the “late stages of a long-term bull market,” and there will eventually be a bubble or recession. He pointed out that since 2019, there has been no change in the leadership position of the US stock market (that is, top tech stocks), nor has the recession changed leadership and valuation, which will end in a bubble and/or recession.

Michael Hartnett also said that bonds are in the “early stages of a long-term bear market” due to “excessive fiscal, debt, war, and anti-globalization.” He said that the long-term bear market in bonds will only end when voters vote to reduce fiscal excesses.

Furthermore, Michael Hartnett said the dollar is in a “long-term bear market,” particularly compared to cryptocurrencies and gold, while commodities are in the “early stages of a long-term bull market.” “The US debt/deficit requires weaker foreign exchange to attract foreign capital and/or the Federal Reserve to support the Treasury by cutting interest rates,” he said. He added that the dollar's cyclical bull market driven by US exceptionalism was driven by “unusually loose fiscal policies.”

Editor/jayden