What will the jobs report show? Six Wall Street traders try to predict the future

Say you had a crystal ball, and could see today what the jobs report will show tomorrow. Would you even know how to trade it?

Never a simple proposition, it’s an even thornier one now, with cross-currents raging as the health of the economy plays havoc with the Federal Reserve’s reaction function.

Good news has been taken as everything from great to awful, by investors operating in a world of uncertainty.

Regarding Friday, their view is relatively straightforward: the better the number, the worse for markets, with Jerome Powell’s central bank looming as the larger threat.

Economists forecast that US employers added 298,000 last month and that the unemployment rate stayed at 3.5%, a five-decade low. Stocks have been choppy since Friday, when Powell and other officials made clear their intention to tamp down inflation, even if that means damaging the economy.

Here are six views on what traders and strategists would expect in the various scenarios.

Scott Bauer, CEO of Prosper Trading Academy:

“In a hypothetical world, if I knew that the number was going to be far less than expected, I’d be buying Qs and S&Ps right now.

If that number is less than expected, then the market is going to take that as job growth is slowing down, the job market is slowing down, employment finally is starting to contract a little bit.

That’s not a great thing when you think about it for the economy, but that is a sign then for the Fed that OK, it’s starting to happen and maybe they don’t have to be as aggressive. And if the Fed’s not as aggressive, the market’s going to rip higher. If I knew that the number was going to be significantly higher than expected, I’d be shorting.”

Adam Phillips, MD of portfolio strategy at EP Wealth Advisors:

“We are in an environment where strong economic data will be perceived as negative by investors because it strengthens the Fed’s argument for more aggressive policy tightening.

If Friday’s number comes in weaker than expected, you could see a positive market response since that might signal that the Fed can get away with taking some pressure off of the economic brakes for now.

If, however, the number comes in sharply lower than expected, markets could sell off if investors see that as a sign that economic slowing is already well under way.”

Kim Forrest, founder and chief investment officer at Bokeh Capital Partners:

“The ship has passed — bad news is good news — because the Fed has said they’re really concentrating on inflation. So let’s say the jobs number is a large negative — that somehow we’ve missed in the unemployment numbers and JOLTS numbers and all the other numbers out there — and that’s going to theoretically force the Fed’s hand to stop raising, I don’t know that that one number would do it,” she said.

If the number beats forecasts, “we’d be really worried about inflation. All things being equal, that would be reflected in the numbers. Probably the companies with heavier people exposure might trade down.

And if it’s worse, that says the economy kind of sucks, but not for a long enough time to have the Fed do anything. They said they’re going to raise — they’re going to raise! It would take something outside the economic news to drive this.”

Max Gokhman, chief investment officer at AlphaTrAI Inc.:

“Good news should be taken at face value. The stronger our economy is when it hits the inevitable Fed-induced downturn, the less downside risk to stocks we’ll have.

Consumer balance sheets matter more than corporate ones, so a robust labour market is important. Robust, however, does not mean overheated — and we’re still smouldering.”

Independent adviser Alliance Chief Investment Officer Chris Zaccarelli:

“Good news in terms of the economy is a jobs print well north of 300k — say 500k or more. And I agree with the premise that good news, in terms of jobs, will be bad news for the market. The market has been given a stern talking to on Friday by Powell and it is going to take that to heart for now.

For that reason, we think a strong jobs report will be a reason for a market sell-off on Friday. The only way we see that as not happening is if enough selling happens before then,” he said.

“We are expecting a weaker jobs number — potentially below 300k — and if that happens, the market may not react to much. It all depends on the set-up — for example, how much the market has sold off before Friday.”

Joseph Saluzzi, partner and co-founder of Themis Trading LLC:

“We’re in bad-news-is-good-news mode. So actually, I would buy a weak jobs number, but not that weak.

The reason would be that with a slower economy, maybe the Fed slows the increases. I’d also take a close look at the average hourly earnings to see if that would confirm a weaker trend.” 

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