How JPMorgan sees stocks reacting

Friday’s all-important jobs report could have big implications for the stock market’s moves that day. JPMorgan’s research team has some ideas on what could happen. The firm’s research arm, which is separate from JPMorgan’s trading desk, issued its expectations for how stocks will move following the key release from the Bureau of Labor Statistics. These potential market outcomes are tied to the reading of the headline nonfarm payrolls number. For reference, economists polled by Dow Jones are expecting an addition of 161,000 jobs during the month of August. Traders are especially focused on Friday’s report given the burgeoning concerns about the health of the U.S. labor economy, as well as the fact that last month’s release led to volatility in the market. In line with economists, JPMorgan sees the most-likely scenario — with 40% probability — of a gain in the range of 150,000 to 200,000 jobs. In that case, the firm expects the S & P 500 will jump between 0.75% to 1.25%. That is because it is in line with expectations for an interest rate cut of 50 basis points at the Federal Reserve’s next meeting. In another potential outcome, JPMorgan’s research team sees the jobs number landing between 200,000 and 300,000, which would propel the S & P 500 higher by 1% to 1.5%. While this could mitigate recessionary concerns, traders will need to watch hourly wage data for any signs of inflation. The firm sees a 25% likelihood of this scenario taking place. On the other hand, JPMorgan said a print in the range of 50,000 to 100,000 would push the broad index lower by 0.5% to 1%. The research team assigned a 25% probability of this situation developing. The downside risk here, the firm said, is that the market shifts into the view of there being a forthcoming recession or growth scare. Beyond that, the firm sees likelihoods at 5% each that the number comes in either above 300,000 or below 50,000. If the former happens, JPMorgan said the S & P 500 should rise between 0.25% and 0.5%. Once again, the firm said investors will need to parse hourly earnings data for signs of wage inflation coming back. A move higher in bond yields can also curtail gains for stocks. With the latter scenario, the benchmark index is expected to fall somewhere in the range of 1.25% to 2%. That is because this situation would push the market to quickly adopt a recessionary outlook.