What does Friday's jobs report mean for the market? 'Too hot' and stocks could tumble, says market pro

With Federal Reserve Chair Powell last week reaffirming plans to keep raising interest rates to bring down inflation despite the risk of recession,

“The labor market needs to show signs that it’s on the path to returning to a state of relative balance, where job openings are roughly the same as the number of people looking for jobs—and if it does not show that, then concerns about a more hawkish-for-longer Fed will rise, and that’s not good for stocks,” wrote Essaye in a note on Thursday.

“Numbers this strong would underscore that the labor market remains out of balance, and that would keep the Fed focused on slowing demand via higher rates,” said Essaye. “Practically, this would increase the chances the ‘terminal’ fed funds rate moves above 4% and hopes for a rate cut in 2023 would likely be dashed.”

The 2-year Treasury yield hit a fresh 15-year high TMUBMUSD02Y, 3.524% at 3.528% on Thursday, while the 10-year Treasury yield TMUBMUSD10Y, 3.270% climbed to 3.266%, its highest level since late June.‘Just Right’ However, if job growth falls in a range of zero to 300,000 while the unemployment rate rises above 3.7%, the stock market may expect a modest rally given the drop in stocks over the past five days, according to Essaye.

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Job market gains momentum in July despite recession signals elsewhereThe U.S. economy had about 11.2 million open jobs in July, the latest sign of strength in a historically strong labor market.
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