The U.S. economy expanded last month only 235,000 jobs created, well below the consensus of 750,000 and even below the lowest estimate of 400,000. The immediate explanation was obvious – growth is slowing, the Labour market stagnates and economic recovery is simply not happening fast enough. At first glance, the number a massive disappointment.
But if you dig a little deeper, then everything is not as simple as it seems. The increase in average hourly earnings by 0.6% compared to the previous month pointed to a continued inflation, while the Upward revisions to employment figures in June and July, rising to 976,000 and 1.1 million respectively, indicated that the Numbers may not have been quite as weak as they looked. The fact that almost no jobs were created in the leisure and hospitality sectors indicated that the Covid-19 delta variant may have posed a small problem.
What do the US Jobs Report figures mean for the stock market?
At the end of the day, they don’t seem to mean much at first, since the S & amp; P 500 about the day 1.52 points higher and the Week ended at 4.535. Nevertheless, the job report can be presented either as Signs of upcoming problems or be regarded as a signal that it there is no reason to worry. The numbers could, in other words, be a reason for the Fed to be cautious at the start of tapering, or a signal that the central bank should reduce its bond purchases as soon as possible. „People will find data that supports their opinionsays Keith McCullough of Hedgeye.
But what opinion? Nowadays it can be feeling impossible to decide, and that’s probably why Morgan Stanley strategist Mike Wilson in a statement released last week, has presented two opposing views. On the one hand, the Fed looks at the incoming data, in particular on Inflation and decides that it is time to reduce the pace of bond purchases. Wilson suspects that Jerome Powell & amp; Co. could begin the process by winter, and if it does, the Interest rates rise, which Stock valuations fall and the market will most likely decline by at least 10%. Financial stocks could benefit from this development.
On the other hand, due to the declining consumer confidence and the fact that the Demand was so strongly preferred, also a Signs of slowing growth. And if growth surprises too much downwards, this too could lead to a final correction of the market which would lead to Outperforming health and consumer staples stocks.
„The bottom line is that this fall, we still expect our mid-cycle transition to end with an S&P 500 correction of more than 10%, but a narrative of either fire or ice will determine the lead. As such, we recommend a defensive quality investment with financials that are successful in both scenarios and should protect investors.”- Mike Wilson
Is a market correction imminent?
Wilson’s” fire-and-ice ” Scenarios ends in the same way, with a long-overdue correction. That a correction should have taken place in the meantime is another narrative that is being spread by investors talking about the continuous profits of the market amaze. The S & amp; P 500 rose 2.9% in August, the seventh consecutive monthly increase. This was only the 15th time since 1950. The S&P 500 is also available all year round without a decrease of at least 5 %, what has occurred only twice since 1980 – in 1995 and 2017-notes Keith Lerner, chief market strategist for Truist Advisory Services.
This is certainly rare, and there is no shortage of reasons, why the market should fall: He goes up too long. It’s too expensive. The Fed distorts performance.
Nicholas Colas of DataTrek offered no less than 10 reasons ranging from market seasonality to geopolitical events to a Covid outbreak, which is so severe that new locks are required. He even cites factors that we would benefit from in the real world, but not necessarily the market, such as a faster end to the pandemic. „Today’s list is not a warning to ‘ sell everything“, writes Colas. „Rather, it’s a (hopefully) comprehensive look at what could go wrong.“
Just because it can go wrong doesn’t mean it will. This is especially true because of the strange market dynamics.
J. P. Morgan strategist Nikolaos Panigirtzoglou writes Retail investors a large part of the rally and buys shares at each slump. But that has driven stocks to levels that professional investors such as pension funds was uncomfortable. Instead of charging stocks, they bought bondsto keep your asset allocation properly weighted. And when the time comes, they will start selling their stocks – and probably their bonds, too – Panigirtzoglou adds.
„[In] In the absence of a significant slowdown in the retail flow into stocks, the risk of a stock correction remains lowwrites Nikolaos Panigirtzoglou. “Whether the upcoming change in Fed policy will change the attitude of retail investors to stocks remains to be seen.”
No market goes up forever, and the Market could definitely use a breather. But there is a problem when trying to predict a correction: none to get. The S&P 500 recorded four declines of 3% or more in 2021, however, has resumed its rise every time. The sale at the bottom would have means that big wins remained on the table. Instead of trying to time the exit perfectly, I would listen to the market that does not yet show a propensity for correction.
Last updated on September 8, 2021
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