Inside Markets — Jobs and Post-Election Re-Risking

Consensus for October non-farm payrolls is looking for +110,000 down from September’s outsized increase of +254,000. This forecast assumes that overall nonfarm employment growth is reduced by 75,000-100,000 owing to hurricanes and the Boeing machinists’ strike. Consensus is also looking for a 4.1% Unemployment Rate (UR) and +0.3% wage increase. We’re penciling in non-farm payrolls at +100,000, a 4.2% UR and an inline wage number. This type of outcome would result in a flat to +50bp reaction from the SPX. The best outcome for US equities would be non-farm payrolls in the 120,000-200,000 range with inline wage growth of +0.3%. This is the Goldilocks or no landing outcome of steady growth without inflation and would likely result in SPX upside of +50-75bp only. Tail risk scenarios include nonfarm payrolls greater than +200,000 or below +20,000. A print above +200,000 would point to reaccelerating economic growth and affirm that last month’s +254,000 wasn’t an outlier. This type of outcome would be good for GDP growth but would translate into a longer/flatter cutting cycle or even skipping a cut in November with a likely pause in H1’25. In this scenario, we see the SPX losing ~25bp-50bp. The second tail-risk outcome of a <20,000 print or negative print would create recession/stagflation concerns, resulting in SPX downside in the 75bp-150bp range. There would be some initial defending of the number due to the impact of hurricanes and strikes, but those items are included in consensus estimates. This type of print would result in a growth scare (equities and bond yields lower), at least until October retail sales are released on November 15.

Based on some respondent comments in recent ISM reports and corporate commentary, a good number of companies are expected to delay both hiring and capex decisions until after the US Election. If that’s the case, it’s likely that the election will serve as a clearing event for markets. Re-risking could happen quickly, and we’d look for out-of-favor/under owned themes to outperform. Post-pandemic increase in corporate/individual savings has received plenty of attention. Since 2019, the allocation to cash has increased by $3.465T, Bonds $2.029T and Equities $55B