(Bloomberg) - A weaker jobs report would be a stagflation signal, raising the odds of a selloff in stock markets, according to Bank of America Corp. strategist Michael Hartnett.
Recent US economic data has been stagflationary as it suggested slowing growth at a time of sticky inflation and labor costs, Hartnett said. If the Labor Department’s report on Friday were to show the US added fewer than 125,000 jobs in April, and the average hourly earnings rose more than 0.4% from the previous month, that would be a “stagflation risk-off print,” he said.
On the other hand, if payrolls were to rise by more than 225,000 and average hourly earnings by less than 0.2%, it would be interpreted as “Goldilocks back on and risk back on,” Hartnett wrote in a note.
Forecasters expect the report, due at 8:30 a.m. in Washington DC, to show employers boosted payrolls by 240,000 in April. Average hourly earnings likely advanced 0.3% compared with the previous month.
A rally in US stocks faltered last month as the Federal Reserve signaled it would hold interest rates higher for longer amid elevated inflation. A sharp slowdown in economic growth in the first quarter has also raised worries that the US was heading toward stagflation.
Other market strategists, including at BofA, have downplayed those concerns. The bank’s head of US equity and quantitative strategy, Savita Subramanian, said on Thursday that a sturdy economy would sustain the bull-market run in US stocks.
Hartnett, on the other hand, said stocks were in a “late secular bull market,” which ends either with a bubble or recession.
Subramanian and Hartnett have often taken a contrarian stance on the outlook for equity markets. In March, they disagreed about artificial intelligence pushing technology stocks into bubble territory.
By Sagarika Jaisinghani
With assistance from Thyagu Adinarayan
