June jobs report brings downside risk to stocks, JPMorgan traders say
The U.S. stock market will likely sell-off sharply if Thursday’s jobs report is anything like the weak private payrolls number from ADP, according to imagined outcomes from the JPMorgan trading desk. In a note on Wednesday, the JPM U.S. Market Intelligence team said the stock market is likely to move higher if the jobs report is roughly in line with expectations, but said that there’s more risk to the downside than the upside. Economists broadly expect growth of 110,000 jobs, according to Dow Jones. JPMorgan’s chief U.S. economist Michael Feroli projects 125,000 jobs added. The JPMorgan trading desk’s base case calls for job growth of between 105,000 and 125,000, which would lead to the S & P 500 gaining 0.5% to 1% on Thursday. “As long as [nonfarm payrolls] is above 100k this is a stock market that remains bid. While we view this as a positive, a print toward the lower end of the range would be unlikely to create a material shift in sentiment especially given the context of Powell’s comments that he expected tariff impacts to be reflected in June–August data readings,” the note said. .SPX YTD mountain The S & P 500 hit a new record high on Wednesday ahead of the June jobs report. However, some traders and economists may be feeling less confident in those forecasts after the ADP report for June showed private payrolls shrank by 33,000 jobs. The ADP is not always predictive of Bureau of Labor Statistics jobs data, but the weakness did add credence to the theory that the economy is starting to sputter. The JPMorgan scenario analysis calls for the S & P 500 to fall between 0.25% and 1.5% if payroll growth is in the realm of 85,000 to 105,000 jobs. Below that range, the index could fall 2%-3%. “At best, the Market would see a recession as likely and at worst a stagflationary scenario where neither fiscal nor monetary support is likely to be forthcoming,” the trading desk said about that low end scenario. “Stagflation” refers to periods where economic growth is tepid and inflation is higher. Of course, the jobs report has surprised to the upside before and could do so again. If Friday’s report shows growth between 125,000 and 145,000, the JPMorgan team projects an S & P 500 gain of 0.75% to 1.25%. If growth is above 145,000, the estimated gain is bumped up to a range of 1% to 1.5%. The June jobs report is coming out on a Thursday, as opposed to the typical Friday release schedule, because of the July 4 market holiday.
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