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As the eagerly anticipated release of Friday’s jobs report approaches, investors are on the lookout for a crucial market signal. The December report holds the key to a delicate balance, akin to a Goldilocks scenario neither too robust to trigger interest rate hikes nor too slow to spark economic worries.
Highlights:
- Brace yourselves for the unveiling of the December jobs report this Friday. Market expectations are riding high, with eyes set on a projected 170,000 surge in nonfarm payrolls and an unemployment rate holding steady at 3.8%.
- According to Art Hogan, Chief Market Strategist at B. Riley Financial, the sweet spot lies within a range of 100,000 to 250,000 in job additions. His insight underscores the nuanced expectations in the market and encourages a closer look at the underlying reasons behind potential rate cuts.
- Amidst fervent discussions about potential rate cuts, Art Hogan urges investors to shift their focus to the why behind these anticipated moves. The market, he notes, has become animated about rate cuts, making it crucial for stakeholders to delve into the driving forces behind these potential shifts in monetary policy.
Friday’s Jobs Report: Finding the Goldilocks Number for Markets
Describing this sweet spot as a Goldilocks number, experts hope for a figure that is just right, avoiding extremes. The good news is that the acceptable range seems quite broad, with a higher likelihood of positive news than negative.
While the Dow Jones estimate anticipates a nonfarm payrolls gain of 170,000, Art Hogan, Chief Market Strategist at B. Riley Financial, suggests the acceptable range is broader, ranging from 100,000 to 250,000.
Hogan is optimistic about the market’s response to good news, stating, “I just feel like we have a much better receptivity to good news being good news now that we know that that’s not going to induce another rate hike. It’s just going to push off a rate cut.”
Current market sentiment suggests that the Federal Reserve has concluded its rate hiking cycle and may even consider rate cuts as early as March, potentially reducing its benchmark rate by 1.5 percentage points by the end of 2024. However, recent signals from the Fed hint at a potential shift in this trajectory.
A strong jobs report could impact expectations of a quick policy easing, as Hogan explains, If we were to get above 250,000, then people might look at that and say we have to cancel March as a potential rate cut and maybe take one off the table for this year.
Hopes for Rate Cuts Amidst a Rocky Start
The new year has brought a bumpy ride for markets, especially impacting rate-sensitive Big Tech stocks. Investors are keeping a close watch on the upcoming Friday’s jobs report, anticipating signals from the Federal Reserve regarding potential changes in monetary policy. The recent struggles of Big Tech stocks have fueled speculations that the Fed might ease up on rates, but there’s a cautious undertone.
Art Hogan, Chief Market Strategist, suggests that investors should consider the broader context when evaluating the impact of lower rates. He points out that while the market is excited about potential rate cuts, the reason behind them is crucial. If rate cuts are driven by economic struggles and the need for stimulation, it might not be a positive sign. On the other hand, rate cuts prompted by a controlled path towards the Fed’s inflation target are seen as favorable.
Hogan emphasizes, “This is a market that’s gotten itself a little jazzed up about rate cuts and when they’re going to happen. People need to focus on why they’re going to happen.” He distinguishes between “bad rate cuts” triggered by economic distress and “good rate cuts” driven by inflation aligning with the Fed’s target.
He further notes, “If the wheels are coming off the economic cart and the Fed has to rush in to stimulate that, that’s bad rate cuts, right? The good rate cuts are if the path of inflation continues toward the Fed’s target. That’s a good rate cut. So if that doesn’t happen until the second half, I’m fine with that.”
In this scenario, as investors await Friday’s jobs report, they understand that the health of the labor market is not solely determined by the headline payrolls number. The report will be a key factor influencing market sentiments and expectations regarding future rate cuts.
Decoding Details Ahead of Friday’s Jobs Report
As anticipation builds for Friday’s jobs report, there’s a keen focus on specific details, especially concerning wages and the overall health of the labor market.
Wages have been a key factor in the inflation puzzle. The forecast for average hourly earnings suggests a 12-month growth rate of 3.9%. If this prediction holds true, it would mark the first time wage gains fall below 4% since mid-2021.
The expected uptick in the unemployment rate to 3.8% is on the horizon, yet it would maintain a level below 4% for an impressive 23 consecutive months.
Julia Pollak, Chief Economist at ZipRecruiter, paints a picture of a labor market gradually slowing down in an organized manner. Her expectation for December is a continuation of the trend with around 150,000 new jobs and a possible slight increase in unemployment due to more people entering the workforce.
While the labor force has grown by approximately 3.3 million through November 2023, its impact on the unemployment rate has been minimal. Despite this, Pollak points out that the hiring rate hasn’t fully recovered to pre Covid levels. The quits rate, a measure of worker confidence in finding new employment, has decreased to 2.2%, down from its peak during the Great Resignation in 2021 and 2022.
Nick Bunker, Economic Research Director at Indeed Hiring Lab, notes a shift in the job market dynamics. The once booming tech sector now lags in terms of job openings, with healthcare taking the lead.
Bunker observes, “We’re seeing a labor market that is not as tight and as hot as what we saw the last couple of years. But it’s got into a groove that seems more sustainable.”
Conclusion
In summary, Friday’s Jobs Report is eagerly awaited by investors seeking the Goldilocks number neither too strong to prompt interest rate hikes nor too weak to raise economic concerns. The acceptable range is broad, with optimism for positive news. Chief Market Strategist Art Hogan emphasizes the importance of understanding the reason behind potential rate cuts, differentiating between “good” cuts aligned with inflation targets and “bad” cuts triggered by economic distress. As the market navigates uncertainties, details such as wages, unemployment rate, and overall labor market health will play a crucial role in shaping sentiments. The report’s impact on expectations for future rate cuts adds an additional layer of significance for investors in this dynamic landscape.
Read more: US Jobs Report Impact on Asian Markets and Dollar Strength
