Soft US Jobs Data Could Trigger Stock Selloff, BofA Strategist Warns

In the wake of recent economic data, Bank of America strategist Michael Hartnett has warned that a disappointing jobs report could indicate stagflation, thereby increasing the risk of a stock market selloff.

What Happened: Hartnett suggested that the current U.S. economic data points towards a potential slowdown in growth, coupled with consistent inflation and labor costs, Bloomberg reported on Friday.

He stated that if the Labor Department’s report shows less than 125,000 jobs added in April, and average hourly earnings increased over 0.4% from the previous month, it could signify a “stagflation risk-off print.”

However, if payrolls increased by more than 225,000 and average hourly earnings rose by less than 0.2%, it would indicate a return to a “Goldilocks” economy and a risk-on scenario, Hartnett added.

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Forecasts for the report, due at 8:30 a.m. on Friday in Washington DC, anticipate that employers increased payrolls by 240,000 in April, with average hourly earnings likely advancing 0.3% compared with the previous month.

Why It Matters: The U.S. stock market has been on a rollercoaster ride, with investor sentiment improving ahead of the jobs report. The Dow Jones index surged over 300 points, despite the Federal Reserve’s decision to maintain higher interest rates due to elevated inflation.

Investors are anxiously awaiting the April jobs report, as the U.S. labor market has shown signs of robust health and moderate tightness. The previous five labor market reports have consistently surpassed expectations in the pace of growth for new non-farm payrolls.

However, concerns about potential stagflation have been raised due to a significant slowdown in economic growth in the first quarter. The Federal Reserve has taken a cautious stand on inflation, with Chairman Jerome Powell signaling a preference for rate cuts over hikes.

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