Traders at JPMorgan are anticipating a modest gain in the stock market following the release of December’s nonfarm payroll report, which is expected to provide insights into the country’s unemployment rate, job growth, and wage increases. This report, set to be revealed on Friday, will hold significant weight in determining the Federal Reserve’s upcoming interest rate decision.
Economists surveyed by Dow Jones forecast that the economy added 54,000 jobs in December, a slight decline from the 64,000 recorded in November. Additionally, they predict a small drop in the unemployment rate from 4.6% to 4.5%.
In a recent note to clients, JPMorgan’s trading desk outlined several possible outcomes for the jobs report and evaluated the potential impact on the stock market. Michael Feroli, the bank’s chief U.S. economist, estimates that approximately 75,000 jobs were added last month, keeping the unemployment rate at 4.6%. This optimism in job growth is influenced by trends identified in the National Federation of Independent Business Small Business Survey’s Hiring Sub-index, which has shown consistent improvement since summer. Although this positive trend may not appear in the immediate report, JPMorgan anticipates it will lead to increased hiring in the near future, with the caveat that such employment growth could contribute to inflationary pressures.
The bank also outlined its scenarios for Friday’s jobs report, along with the likelihood of each outcome and predicted market reactions:
– A scenario where more than 105,000 jobs are added has a 5% chance, with the S&P 500 potentially declining between 0.5% and 1%.
– If between 75,000 and 100,000 jobs are added, expected to occur with a 25% likelihood, the S&P 500 might consider a gain of 0.25% to 1%.
– A more probable scenario of job growth between 35,000 and 75,000 jobs, with a 40% chance, could see the S&P rising by 0.25% to 0.75%.
– Conversely, if the economy sees job growth between 0 and 35,000 jobs, there remains a 25% possibility for the S&P 500 to fluctuate, resulting in a loss of up to 0.25% or a gain of 0.5%.
– Finally, the possibility of no new jobs being added, which carries a 5% chance, could result in a significant downturn for the S&P, with potential losses between 0.5% and 1.25%.
As the market prepares for the jobs report, all eyes will be on the figures released Friday and their implications for the broader economic landscape, particularly regarding the Federal Reserve’s monetary policy decisions in the coming weeks.
