According to strategists at Bank of America (BoA), even if the FED has paused its rate hikes, U.S. stocks still face a significant economic downturn risk. With recent employment data pointing to a “steep descent” in the economy, investors are advised to proceed with caution.
Employment Data and Economic Outlook
Strategist Michael Hartnett recently highlighted that the softening signs in the employment market are a “strong signal” that the FED might halt its rate hikes. If today’s employment data turns out to be “benign“, it could be the “final piece of the Goldilocks puzzle“, said Hartnett. However, from this month onward, he expects indications of a steep economic decline.
Hartnett accurately predicted the U.S. stock market’s performance last year, and despite the S&P 500 rising by 17%, he maintains a bearish outlook for 2023. The weakening investor confidence is being priced in, with expectations that the FED might adopt a more dovish policy. On the other hand, the S&P 500 ended the month of August with a decline, marking the first drop since February.
Market Focus on Non-Farm Employment Report
The market’s attention was turned to the non-farm employment report scheduled for release on Friday. This report was expected to show the lowest increase since the end of 2020 in the U.S. The report was published in the afternoon, revealing a non-farm employment figure of 187,000. This number exceeded market expectations, which were set at 170,000.