(Bloomberg) -- Too many jobs? Stocks fall. Too few jobs? Stocks still fall.
That’s the message from Wall Street as fresh uncertainty about the rates path and the economy is creating a double tail risk for stocks into Friday’s US nonfarm payrolls data. Traders and strategists warn of declines if the print deviates too far in either direction.
“Too hot and rates will climb higher, which the stock market clearly doesn’t want, and too cold will quickly shift worries from rates to growth,” according to a trading desk note from Goldman Sachs Group Inc. to clients this week.
Economists are looking for US nonfarm payrolls to have grown by 165,000 in December, according to the median estimate in a survey of economists by Bloomberg.
Anything above 200,000, and the S&P 500 Index is seen dropping about 1%, according to Goldman Sachs. A JPMorgan Chase & Co. trading desk note sees the gauge as poised to potentially fall by 0.5% to 1% if the print is above 220,000.
Should the data disappoint to the downside, with less than 100,000 new jobs, then stocks might suffer a decline of similar magnitude. To Goldman, the “sweet spot” for equities may be 100,000 to 125,000 jobs added.
Nothing less than a “goldilocks” number is needed to hold longer term rates below 5%, stabilize the rate sensitivity and prevent the Nasdaq leadership from cracking, writes Bank of America Corp. strategist Michael Hartnett. He adds that a “blowout” number could see the S&P 500 falling about 4% to the 5,666 level.
Following the Federal Reserve’s indication that it may slow the pace of interest rate cuts in 2025, stock markets have experienced notable volatility. Following a rally last week, equities lost traction on Tuesday as a report on US service providers showed a price gauge hitting the highest since early 2023.
A selloff in big tech weighed heavily on Wall Street trading, with the S&P 500 down over 1% and the Nasdaq 100 falling even more. Nvidia Corp. sank 6.2% and US Treasuries fell across the curve, that drove 30-year yields to the highest since 2023.
--With assistance from Julien Ponthus, Phil Serafino and Michael Msika.
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