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The stock market faces a major test this week with the release of the May jobs report on Friday.
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BofA said the Goldilocks range for the report was 125,000 to 175,000 new jobs added last month.
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Fewer than 125,000 jobs created suggests that bad news for the economy could ultimately be bad news for stocks.
The stock market faces a major test this week with the release of the May nonfarm payrolls report on Friday.
Estimates suggest that 178,000 new jobs were added to the economy in May, roughly in line with the April jobs report.
According to a Bank of America note released Monday, the report is expected to be in the “Goldilocks range” of 125,000 to 175,000 new jobs added during the month. If this happens, then the stock market should rebound.
Indeed, a result in this range would likely give the Federal Reserve more flexibility to cut interest rates sooner rather than later. This dynamic has been at work in recent months, with weaker-than-expected economic data welcomed by stock investors on hopes that interest rate cuts may be imminent.
The bank also said such a result should translate into an unchanged unemployment rate of 3.9%.
In contrast, Bank of America said a May employment report below 125,000 would be bad news for the stock market and could lead to a selloff.
“Bad news has been good news, but below +125,000, bad news could become bad news,” said Ohsung Kwon, a strategist at Bank of America, adding that such a figure would suggest a deterioration in the economic growth.
“Gains below 125,000 NFP could increase the risk of triggering the Sahm rule, reigniting recession fears in the market,” Kwon said.
Sahm’s rule tracks the three-month moving average of the unemployment rate and suggests that a recession is imminent when the moving average increases by 50 basis points.
Finally, a May jobs report that is higher than Bank of America’s Goldilocks range should also be positive for stock prices, as it would signal stronger-than-expected economic growth.
Bank of America expects the May jobs report to show 200,000 jobs added during the month.
Read the original article on Business Insider
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