-
According to Morgan Stanley, the next jobs report could extend the stock market rally beyond just the technology sector.
-
The company expects to add 185,000 additional non-farm jobs, which is higher than consensus expectations.
-
A strong jobs report will “give markets more confidence that growth risks have diminished.”
Mike Wilson, chief U.S. equity strategist at Morgan Stanley, says the next round of employment numbers could provide a boost to underperforming stocks.
The latest stock market rally, fueled by investment in artificial intelligence, has sent the S&P 500 up about 20% and the Dow Jones Industrial Average up about 6,000 points over the past 12 months. Many other names, however, have lagged amid the excitement about technology.
That could change if the next non-farm employment figures, due out next Friday, come in higher than forecast, Wilson said.
“Higher than expected job creation and a lower unemployment rate would likely give markets more confidence that growth risks have abated, paving the way for equity valuations to remain elevated and potentially allowing other markets/stocks that have been lagging to catch up,” Wilson wrote in a note Tuesday.
Morgan Stanley analysts forecast that the U.S. added 185,000 nonfarm jobs in August, above the consensus estimate of 162,000 and up from 114,000 jobs in July.
The bank forecasts the unemployment rate to fall to 4.2%, in line with consensus. That’s down slightly from 4.3% in July, which was a surprise increase from 4.1% in June.
If the jobs report falls short of expectations for the second month in a row, it could fuel renewed fears of a recession, Wilson said.
“Conversely, another weak report and a further rise in the unemployment rate would likely reignite growth fears and put pressure on stock valuations, as they did last month,” Wilson said.
Weak employment numbers could also force the Federal Reserve to cut rates more sharply than forecast.
According to Wilson, a series of 25 basis point cuts “might be the ideal solution for stock prices if it is accompanied by stable growth,” while a 50 basis point cut “might not be received positively by the stock market if it is accompanied by a weak labor market.”
The stock market rally has broadened in recent months as investors have become increasingly cautious about the returns on AI investments, with spending expected to reach $1 trillion in the coming years.
That’s been evident over the past week, as Nvidia extended its post-earnings decline to 13% since reporting earnings on Thursday. The results fell short of ambitious targets, and investors are still questioning whether AI returns are feasible for the chipmaker’s customers.
As other sectors catch up, about 16% of the S&P 500 rose to a 52-week high, up from 4% at the start of the year, Bloomberg data showed.
Read the original article on Business Insider
