Stock markets are anticipated to trade sideways until there is clearer direction in US employment data, according to strategists at Bank of America Corp. The team, led by Michael Hartnett, suggests that various factors are influencing market trends, supporting both optimistic and pessimistic viewpoints.
Market Dynamics
Optimists argue that technology and semiconductor stocks, including this year’s standout Nvidia Corp. (NVDA), have bounced back from significant technical levels. On the other hand, pessimists caution that declines in bond yields and banking stocks often signal trouble.
Importance of Employment Data
Hartnett noted that a clear trend in employment data could resolve the current uncertainty in the markets. After August’s non-farm payrolls increased by 142,000—below economists’ expectations—Hartnett observed that “risk rotates rather than rips or retreats” until more definitive job market signals emerge.
Impact of Weak Employment Figures
Since mid-July, US stocks have experienced volatility as weaker employment figures raised concerns about a potential recession. This uncertainty has left investors speculating about the scale of potential interest rate cuts by the Federal Reserve in the coming months.
Interest Rate Expectations
Traders are currently anticipating over 100 basis points in rate reductions by the end of 2024, starting with a quarter-point cut expected next week, according to swaps data.
Hartnett’s Investment Preferences
Hartnett, who previously remained bearish on stocks while the S&P 500 rallied last year, has indicated a preference for bonds in 2024. For now, he remains optimistic about bonds and gold. For equity investors, Hartnett recommends a strategy involving a mix of resource stocks and bond-sensitive sectors, such as real estate investment trusts.
Upcoming Jobs Report
The next employment report from the Labor Department is scheduled for October 4. Until then, Hartnett advises a cautious approach to equities, emphasizing the potential benefits of focusing on bonds and gold.
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