Source: Jin10 Data
Bank of America believes that the ideal range for non-farm job growth in May is between 125,000 and 175,000.
US stock investors will be focusing on the US employment report this week, hoping to see job growth that is strong enough to not reignite inflation concerns, but not so slow as to generate concerns about a recession.
Economists surveyed by The Wall Street Journal predicted that Friday's jobs report will show the US economy added 178,000 jobs in May, roughly the same as April.
According to a report from Bank of America's global research analysts on Monday, the ideal range for non-farm job growth in May is between 125,000 and 175,000 for the stock market to rebound. If this goal is achieved, then the stock market should rebound.
This is because if the data is within the range mentioned above, the Federal Reserve may have greater flexibility and can cut interest rates sooner. In recent months, this narrative has been playing out, with weaker-than-expected economic data causing stock market investors to cheer as they see it as evidence of an impending rate cut.
In addition, analysts also believe that a reading of non-farm job gains within this range will keep the unemployment rate basically unchanged.
The US unemployment rate was 3.9% in April, still hovering near historic lows. While US job growth has recently slowed down, the Federal Reserve is still maintaining rates at a high level. This is because its efforts to cool the economy to curb inflation have not had a clear effect, but the job market is still strong.
Bank of America analysts said, "For the past two months, bad news has been good news for the stock market. But if job growth deteriorates too much, bad news will become bad news."
Bank of America strategist Ohsung Kwon pointed out that if non-farm job gains in May are below 125,000, this will be bad news for the stock market and may trigger a sell-off. He added that such a reading will indicate that economic growth is deteriorating.
Kwon said, "Job growth below 125,000 could increase the risk of triggering the Sam rule, which could reignite concerns about a recession in the market."
The Sam rule is that when the three-month moving average of the unemployment rate rises by 0.5 percentage points or more relative to the low point of the past 12 months, it marks the early stages of an economic recession.
Bank of America expects the May non-farm employment report to show an increase of 200,000 jobs that month. The bank said, "There are almost no signs that hiring activity is cooling off steeply or that unemployment is rising rapidly. Initial jobless claims are still low, and our internal credit card spending data shows that consumption is still supported by wage income."
Editor/Lambor