Economic perma bull and special advisor to President Trump Peter Navarro may not want to hear this, but if the headline September jobs report prints below 100,000 the remarkably resilient broader stock market could go right in the tank.
The selloff would probably stem from two lines of thinking from those on Wall Street.
First, the escalating U.S. trade war with China that is beginning to delay capital expenditure spending plans by businesses is filtering its way into hiring plans. One prominent finance chief at a major tech firm Yahoo Finance recently spoke with says more discussions are cropping up among key clients about delaying contracts amid yawning trade uncertainty. Further, the source says more companies it partners with are starting to look for ways to cut costs to counteract cautiousness among their own book of business.
That sounds like hiring plans among big companies could increasingly stall into year end.
Secondarily, the market may view a lackluster September jobs report — think sub-100,000 on the headline non-farm payrolls number — as the Federal Reserve’s interest rate cuts being unable to arrest the growing effects of a trade war with China. Remember, the S&P 500 and Dow Jones Industrial Average continue to trade near record highs on the belief the Fed’s cheap money spigot will save the economic day in the face of cooling job growth and Trump impeachment concerns.
After all, there is unlikely any other near-term catalyst besides the Fed to jumpstart a slowing labor market. The U.S. manufacturing sector is in recession. Consumer confidence has softened, which could weigh on the holiday spending plans of many shoppers. And the Trump administration doesn’t appear anywhere near a trade truce with China.
“If that print is below 100,000, I would think the knee-jerk reaction on that is that they are going to start selling stocks and buying bonds. I think that would be a risk-off move,” acting Wells Fargo chief economist Jay Bryson said on Yahoo Finance’s The First Trade.
To be sure, most on Wall Street aren’t expecting much from the September jobs report after a disappointing August showing. That in and of itself begs the question if the stock market is overdue for a correction. The consensus estimate on the Street is around 125,000 jobs having been created in September.
In August, the U.S. economy created 130,000 jobs versus estimates for 160,000. July’s employment figures were revised down by 5,000, underscoring how the effects of the trade war are gaining momentum.
“In our view, mounting downside risks from slowing global growth, depressed business sentiment, trade policy and other geopolitical uncertainties argue for more Fed easing than the policymakers projected in the September dot plot, where even the most dovish participants expected only one more rate cut over the forecast horizon,” cautions Deutsche Bank U.S. economist Brett Ryan.