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The stock market faces a big test this week with the release of the May jobs report on Friday.
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BofA said the Goldilocks range for the report last month is 125,000-175,000 new jobs.
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Fewer than 125,000 new jobs could indicate that bad news for the economy could finally be bad news for stocks.
The stock market faces a big test this week with the Friday release of the May nonfarm payrolls report
Estimates suggest that 178,000 new jobs were added to the economy in May, which is roughly in line with the April jobs report.
According to a message from Bank of America on Monday, the report should be printed within the “Goldilocks” range of 125,000 to 175,000 new jobs added in the month. If that happens, the stock market should rise.
That’s because a position within that range would likely give the Federal Reserve more flexibility to cut rates sooner rather than later. This dynamic has come into play in recent months, with weaker-than-expected economic data points welcomed by stock investors hoping that rate cuts were imminent.
The bank also said such a reading should result in an unchanged unemployment rate of 3.9%.
On the other hand, Bank of America said a jobs report below 125,000 in May would be bad news for the stock market and could lead to a sell-off.
“Bad news was good news, but below +125,000 bad news could become bad news,” said Bank of America strategist Ohsung Kwon, adding that such a reading would suggest economic growth is deteriorating.
“A profit of less than NFP 125,000 could increase the risk of the Sahm Rule coming into effect, which could revive fears of a recession in the market,” Kwon said.
The Sahm Rule tracks the three-month moving average of the unemployment rate and suggests that a recession is imminent when the moving average increases by 50 basis points.
Finally, a May jobs report on the positive side of Bank of America’s Goldilocks range should also be positive for stock prices, as it would indicate stronger economic growth than expected.
Bank of America expects the May jobs report to add 200,000 new jobs this month.
Read the original article on Business Insider
