For the second month in a row the major issue for tomorrow’s jobs report is simple: Will it cause the Fed to consider more than three rate hikes in 2017? If the answer is “yes,” then that’s a headwind on stocks. If the answer is “no,” then stocks should comfortably maintain the current 2300-2400 trading range.
So, tomorrow’s jobs report is once again potentially the most important jobs number in years, as it has the ability to fundamentally alter the market’s perception of just how “gradual” the Fed will be in hiking rates.
“Too Hot” Scenario (Potential for More than Three Rate Hikes in 2017)
- >250k Job Adds, < 4.6% Unemployment, > 2.9% YOY wage increase. A number this hot would likely ignite the debate about whether the Fed will hike more than three times this year (or more than 75 basis points if the Fed hikes 50 in one meeting). Likely Market Reaction: Withheld for subscribers. Unlock by signing up for your free trial: 7sReport.com.
“Just Right” Scenario (A June Rate Hike Becomes More Expected, But the Total Number of Expected Hikes Stays at Three)
- 125k–250k Job Adds, > 4.7% Unemployment Rate, 2.5%-2.8% YOY wage increase. This is the best-case scenario for stocks, as it would imply still-stable job growth, but not materially increase the chances for more than three rate hikes in 2017. Likely Market Reaction:Withheld for subscribers. Unlock by signing up for your free trial: 7sReport.com.
“Too Cold” Scenario (A June Rate Hike Becomes in Doubt)
- < 125k Job Adds. Given the market’s sensitive reaction to the soft auto sales report earlier this week, a soft jobs number could cause a decent sell-off in equities. As the Washington policy outlook continues to dim, economic data needs to do more heavy lifting to support stocks. So, given the market’s focus on future growth, the bottom line is bad economic data still isn’t good for stocks. Likely Market Reaction:Withheld for subscribers. Unlock by signing up for your free trial: 7sReport.com.
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