Bank of America: Weak employment report is a signal of stagnation, increasing the risk of selling US stocks
Bank of America strategist Michael Hartnett said that a weak non-farm payroll report could increase the risk of stock market sell-offs. According to him, US economic data shows a slowdown in economic growth, with high inflation and labor costs. He believes that the market is in the "late stage of a long bull market" and may eventually experience a bubble or recession. In addition, Hartnett also pointed out that bonds are in the "early stage of a long bear market" and the US dollar is in a "long bear market". Commodities, on the other hand, are in the "early stage of a long bull market"
According to the Zhitong Finance and Economics APP, Michael Hartnett, a strategist at Bank of America, stated that the weak non-farm payroll report would be a signal of stagflation, increasing the possibility of a stock market sell-off.
Data released on Friday showed that the US added 175,000 non-farm payrolls in April, significantly below the market's expected 243,000; the unemployment rate rose to 3.9%, higher than the expected 3.8%; average hourly earnings increased by 3.9% year-on-year and 0.2% month-on-month, both below market expectations.
According to Michael Hartnett, recent US economic data has been in a state of "stagflation," with economic growth slowing down while inflation and labor costs remain high.
Michael Hartnett stated that if the April non-farm payrolls increase by less than 125,000 and average hourly earnings increase by more than 0.4% month-on-month, it would indicate stagflation risk. On the other hand, if non-farm payrolls increase by more than 225,000 and average hourly earnings increase by less than 0.2% month-on-month, it would indicate a "risk-on" scenario.
Michael Hartnett believes that the market is in the "late stage of a long-term bull market" and will eventually experience a bubble or recession. He pointed out that since 2019, there has been no change in the leadership position of the US stock market (i.e., top tech stocks) or a decline in leadership position and valuation, which will end in a bubble and/or recession.
Michael Hartnett also mentioned that bonds are in the "early stage of a long-term bear market" due to "fiscal excess, debt, war, and deglobalization." He stated that the long-term bear market in bonds will only end when voters support reducing fiscal excess.
Furthermore, Michael Hartnett stated that the US dollar is in a "long-term bear market," especially compared to cryptocurrencies and gold, while commodities are in the "early stage of a long-term bull market." He said, "US debt/deficits require a soft USD to attract foreign capital and/or for the Fed to support the Treasury by cutting rates." He added that the US exceptionalism-driven periodic bull market in the dollar is driven by "abnormally loose fiscal policy."