Strong jobs report could interrupt calm on Wall Street
‘It might get a little rockin’ on Friday’
Is Wall Street’s quiet time coming to an end?
The stock market’s eerie quiet — viewed through the prism of tiny daily price swings this summer — could end abruptly Friday in a noisy bout of market volatility if the August jobs report comes in strong and puts the Federal Reserve on track for its first interest rate hike of the year when it meets in September.
The U.S. central bank hasn’t increased rates since December, when it moved rates off zero for the first time in nearly a decade. Wall Street isn’t fully prepared for a hike in September, despite Fed Chair Janet Yellen saying in a speech last week that the case for a rate hike has “strengthened” and Vice Chairman Stanley Fischer hinting Tuesday at not one but two rate hikes in 2016, saying, “I don’t think you can say one and done.”
That’s why this Friday’s jobs report could jolt the market out of its summer doldrums. The broad Standard & Poor’s 500 stock index, which is still hovering near all-time highs, has gone 38 days without a move of more than 1%, its longest such streak since July 2014, according to Bespoke Investment Group.
Wall Street sees the economy generating 180,000 new jobs in August. If the government reports a blockbuster number — a job count north of 250,000 or closer to 300,000 — a growing number of investors believe that could clear the way for a hike.
Still, not everyone is ready for such a move.
The Fed hasn’t done enough to “prep” the market for a soonerthan-expected hike, says Scott Wren, senior global equity strategist at Wells Fargo Investment Institute. Any jobs gains above 225,000 — which would mark a third consecutive month of job gains above the key 200,000 level — would cause investors to “get pretty nervous,” Wren says.
The growing realization of a real chance of a rate increase in a few weeks could drag stock prices down as much as 5% in the days after a very strong August jobs number, Wren adds.
“It might get a little rockin’ on Friday,” Wren says. “I hope it doesn’t because the rockin’ will be to the downside.”
“We might get a wobble in risk markets if the numbers are good.” Luke Bartholomew, money manager at Aberdeen Asset Management