(Bloomberg) -- Semiconductor shares including Nvidia Corp. are in for a rough ride if US jobs data Friday point to a hard landing for the word’s biggest economy, according to strategists at Bank of America Corp.
A reading below 100,000 together with an unemployment rate of more than 4.4% would trigger a selloff in stocks, sending the Philadelphia Semiconductor Index — which includes Nvidia, Broadcom Inc. and Advanced Micro Devices Inc. — to around 4,000, the strategists led by Michael Hartnett wrote in a note. That implies a 16% drop from current levels.
Concerns about a potential US recession have weighed on global stock markets recently, and traders will be looking at the August payrolls report for warning signs. Economists estimate an addition of 165,000 jobs and unemployment of 4.2%, according to a Bloomberg survey. But the so-called whisper number for payrolls among Bloomberg terminal users suggests an addition of just 150,000 workers.
In the hard-landing scenario following the payrolls report, the Federal Reserve would likely respond with a 50-basis-point interest rate cut later this month. That would see 10-year US Treasury yields drop toward 3% from around 3.7% currently, the BofA strategists wrote. The dollar would weaken versus major currencies such as the yen and the euro, and oil prices would plummet to near $60 a barrel, from around $70.
By contrast, a “perfect” payroll reading of 150,000 to 175,000 would point to a soft landing and trigger a reversal of the recent outperformance of defensive stocks. That would benefit technology and energy shares.
Nvidia shares, up 116% year-to-date, have been on a roller-coaster in recent months, acting as a key driver for the S&P 500 Index’s direction of travel. In addition to concerns about economic growth, traders are also worried that the artificial intelligence frenzy that’s driven Nvidia’s gains may be overblown.
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