Jobs report regains 'crown' as most important data for stocks, BofA chart shows

By Christine Idzelis

'The economy remains on robust footing,' say BofA analysts

Futures contracts for the S&P 500 index have become more sensitive to U.S. jobs reports than inflation readings, according to BofA Global Research.

The nonfarm payrolls report has "regained its crown as the most important data release for stocks," BofA analysts said in a note dated Sept. 2. "All eyes will be on the August payrolls report this week," they said, referring to the U.S. employment report that the Bureau of Labor Statistics will release on Friday.

S&P 500 futures (ES00) are now less sensitive to inflation readings from the consumer-price index "than at any other point post-Covid, with the payrolls report now the bigger source of volatility," according to their research. With inflation having eased considerably from its 2022 peak, investors are now watching the labor market closely for signs of softening.

The BofA chart below shows the reaction of the eMini S&P 500 Future Continuous Contract since August 2019 in the five minutes before the release of nonfarm-payrolls and the consumer-price-index data, through the 30 minutes after those reports came out, based on six-month averages.

"Equities seem more excited" about the prospect of interest-rate cuts by the Federal Reserve this year than worried about a potential recession, said the BofA analysts, pointing to the U.S. market's rebound in August. That "makes a hot NFP the bigger risk for stocks this week," they wrote.

Read: U.S. stock-market rebound faces 'huge' jobs reports after Labor Day weekend

Meanwhile, "the economy remains on robust footing," according to the BofA report.

Major U.S. stock indexes were down sharply late-morning Tuesday, as investors weighed fresh data showing factories remained in a slump in August even as the Institute for Supply Management's index tracking U.S. manufacturing edged up from an eight-month low.

"Despite the weak survey evidence, our tracking of third-quarter GDP growth - based on the hard data - remains at 2.5%" annualized, said Thomas Ryan, North America economist at Capital Economics, in a note Tuesday on the ISM manufacturing index.

The Bureau of Economic Analysis estimated in late August that U.S. gross domestic product expanded a revised annual rate of 3% during the second quarter.

See: U.S. economy shows resilience in second quarter with growth at a revised 3%

"Growth has certainly cooled relative to last year, but it has done so at a gradual pace," the BofA analysts said. The recently revised GDP estimate for the second quarter was "supported by strong consumption growth," they said, as consumers continued to spend.

The Dow Jones Industrial Average DJIA was trading 1.1% lower Tuesday morning, after finishing Friday at an all-time high, according to FactSet data, at last check. The S&P 500 SPX was retreating 1.3%, while the Nasdaq Composite COMP dropped 2.2% in late-morning trade.

-Christine Idzelis

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09-03-24 1146ET

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