"The most accurate strategist on Wall Street" boldly predicts: if non-farm payrolls meet expectations, risk assets will soar

According to the financial news app Zhitong Finance, Michael Hartnett, known as the "most accurate strategist on Wall Street" at Bank of America, stated that if the latest US monthly non-farm payroll report released on Friday falls within the bank's expected range, prices of global risk assets, including US stocks, may rise significantly. The Bank of America strategy team led by this Wall Street star strategist indicated that if the September non-farm payroll data shows an increase of 125,000 to 175,000 jobs in the US last month, it would support the market's optimistic expectation of a "soft landing" for the US economy and keep US Treasury yields within a certain range, thereby triggering increased trading of risk assets.

Recent market survey data shows that economists' median forecast for September non-farm payroll data indicates an increase of approximately 150,000 jobs in the US.

It is understood that the Bank of America team led by this strategist held a negative and pessimistic view on the US stock market last year, despite the S&P 500 index entering a new bull market and rising by over 24% last year. For 2024, he expressed a preference for bond assets over risk assets such as stocks.

In a market research report dated October 3rd, led by Hartnett, the strategy team stated that the bullish forces "have the upper hand," and the "definitive description" would be signs that China's fiscal and financial stimulus plan is "working," as well as clear signals from the Federal Reserve that it will introduce more monetary easing policies in the future.

After a continuous five-month rally reaching new highs, the US stock market showed a downward trend in the first few trading days of October, as investors assessed geopolitical risks in the Middle East, global economic growth, and expectations of a Fed rate cut. According to compiled statistics from institutions, stock options traders generally expect the S&P 500 index to fluctuate by approximately 1% after the release of the non-farm payroll report on Friday.

Hartnett's strategy team stated that an "explosive" strong non-farm payroll report is defined as non-farm employment exceeding 225,000, with an unemployment rate below 4.1%. Such explosive data is not what investors in stocks and other risk assets would like to see, as it could likely push the 30-year Treasury yield above 4.5% and prompt market risk aversion. An unemployment rate exceeding 4.3% and below 75,000 jobs would be a "core catalyst" for a significant increase in recession expectations, which is also something risk asset investors do not want to see.

Therefore, in the view of Hartnett's strategy team, the increase of 125,000 to 175,000 jobs in the US non-farm data, which is neither good nor bad, may support the market's optimistic expectation of a "soft landing" for the US economy In the US stock market, the "bull market trend" spreading across various sectors continues, with the benchmark S&P 500 index recently hitting historic highs, mainly due to the massive liquidity brought by the Federal Reserve's unexpected 50 basis point rate cut, as well as the significant rate cuts and resilient labor market leading to expectations of a "soft landing" for the US economy.

Overall, global stock market investors are more inclined towards a "neither good nor bad" non-farm payroll data - this data may significantly boost confidence in a "soft landing" for the US economy, while also maintaining expectations of a 50% likelihood of a 50 basis point rate cut. Although a significantly lower-than-expected non-farm payroll data may boost expectations of a 50 basis point rate cut by the Federal Reserve, it may also significantly increase market expectations of a US economic recession, thus overly pessimistic non-farm data could lead to at least short-term sluggishness in global stock markets.

As of the week ending October 2, the "Custom Bull-Bear Indicator" compiled by Bank of America jumped from 5.4 to 6.0, marking the largest single-week increase since December last year, with a reading above 8 considered a key reference indicator for Bank of America's strategists to "sell in reverse".

Another Wall Street giant, JP Morgan, stated that a strong employment report - adding over 200,000 non-farm jobs - will indicate that the "US economy is restarting from the weakness seen this summer", and may lead some investors to believe that the Federal Reserve may refuse further rate cuts at the November meeting (i.e., no cut in November, and a cut in December). In this scenario, JP Morgan expects the S&P 500 index to remain flat to rise by 0.5%.

If the US adds between 160,000 to 200,000 non-farm jobs, JP Morgan predicts the S&P 500 index could rise by 1%-1.5%. JP Morgan's strategists consider placing non-farm numbers in this ideal range as a "golden girl scenario", as it would indicate higher growth for the US economy without reigniting inflation. In this scenario, the market is most likely to expect a 25 basis point rate cut by the Federal Reserve at the next meeting in November.

With non-farm job additions in September ranging from 110,000 to 140,000, JP Morgan predicts the S&P 500 index could decline by 0.5%-1.5%. JP Morgan's strategists state that if the non-farm employment data falls within this range, it may reignite concerns about US economic growth and trigger market narratives of the Federal Reserve lagging behind economic conditions and reacting too slowly to potential economic downturns. In this scenario, JP Morgan expects defensive assets to perform well, while US bond yields will decrease