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BAD JOBS REPORT EQUALS GOOD NEWS FOR STOCKS

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BAD JOBS REPORT EQUALS GOOD NEWS FOR STOCKS

May 8 2015, 07.55am GMT

STOCK.com

On Friday, when the Labor Department in the U.S. is set to report on how many jobs were created in April, many economists expect that number to be around 228,000. But for stock portfolios, you may want this number to be as low as possible. Yes you read it right!

Going right back to 1996, Fundstrat Global Advisors assessed how markets are impacted after payroll readings. Interestingly, they found that the S&P 500 index (SPX) performs noticeably better the worse the numbers from the payroll readings are relative to consensus.

As strange as this sounds, the logic is fairly straight forward. When the payroll numbers are weaker, it implies that interest rates are lower from the Federal Reserve. Higher numbers do not only bring on sooner and more rate hikes, it also raises concerns around wage inflation and the subsequent impact on profit margins.

Furthermore, the Fundstrat strategists say that the weakness in stocks during the last few weeks historically is great for stocks. This means that better performance the month after payroll reports historically follows the worst two weeks prior to this. The other way is also true where the worst follows the best 2 weeks performance.

According to the report, it has been this way since 1996 and really highlights the role that market expectations contribute to market returns around the labor reports.

MT4 Chart: S&P 500

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