Jobs Report Preview

/in /by

The “consensus” expectation is for 185K jobs added in November, although given yesterday’s ADP report, the “whisper number” is somewhere closer to 200K.  I’m going to give the “Goldilocks” scenarios, but first keep these couple things in mind …  First, the current “consensus” for Fed tapering of QE is Q1 2014.  March is the favored month, although many think it’ll be January.  So, markets will trade off those expectations.  Second, bonds, the dollar and gold are much more reactive to tapering expectations than stocks, so expect more volatility from those asset classes.  Finally, and perhaps the most-important thing to realize about this jobs report, is there isn’t really a “too hot” reading, at least with regard to stocks. 

Good data is good for the market, so if the jobs number is a blowout, expect cyclical stocks to rally, even if there is an initial dip on the headline. 

The “Too Cold” Scenario:  < 140K.  Given ADP, this would be a very disappointing print and likely push QE tapering expectations beyond Q1 2014.  If the number is below 140K, expect a “dovish” response, in that gold and bonds will rally very hard, the dollar will fall, and stocks likely will fall too. (Again, good news is good news.) 

The “Just Right” Scenario:  170K – 200K.  This is the “sweet spot” and if the jobs number is in this range, don’t expect too much of a reaction.  Bonds may get hit the hardest on a number in this range, but really this is currently priced into stocks, bonds, gold and the dollar. 

The “Too Hot” Scenario:  > 225K.  A number above 225K would probably significantly increase the odds of a December taper to better than 50/50,  and we would see a “hawkish” response from markets in that bonds and gold would sell off, and the dollar would rally.  The wildcard is stocks – but I think that in this scenario, stocks would also rally. If there is a knee-jerk decline off a strong headline print, I’d be a buyer of cyclicals on that dip. 

If you’ve found this analysis useful, I invite you to try a free trial of The 7:00’s Report (pronounced The Seven’s Report) by clicking here.

The 7:00’s Report was created to help financial professionals eliminate the information overload they face daily, and to provide comprehensive and succinct macro-economic analysis and daily coverage of all markets: Equities, Commodities, Bonds, Currencies, Economics and Geo-Politics, by 7 AM each morning, and readable in 7 minutes or less.
 
Subscribers to The 7:00’s Report include financial advisors from major bulge bracket firms, RIA’s, multi-billion dollar asset management companies, hedge funds, as well as sophisticated investors. Again, if you’d like sign up for a free trial, please click here.