In the post-COVID era, U.S. stocks are highly sensitive to economic data and exhibit significant volatility in response to both favorable and unfavorable data surprises. However, with Trump's election, this situation may soon change, as his administration will bring a high degree of uncertainty, potentially making his new government policies more important than the macroeconomic data that drives Wall Street activity.
On Friday, this statement will face its first 'test' - the November non-farm payroll report will be released on that day. In this regard, Bank of America advises market participants to "proceed with caution" when evaluating, as the data may contain noise.
Ohsung Kwon, a strategist for stocks and quantitative strategies at Bank of America, stated in a report on Tuesday, "In the post-pandemic era, the market's reaction to macro data has never been stronger. Why? This could be the result of high volatility, high forecast difficulty, and the Federal Reserve's 'data-dependent' stance, but would the situation change if tariffs and unexpected policy announcements become the main macro drivers of stock volatility?"
He added that Trump has indicated plans to implement a tougher and broader tariff policy than in his first term. For example, using tariffs to force Canada and Mexico to control the influx of immigrants into the U.S., not just for economic reasons.
From the options market perspective, traders expect the non-farm payroll data to cause a bi-directional reaction in the stock market of about 0.86 percentage points, which Kwon referred to on Tuesday as "moderate," and the lowest level since July. He said, "We are watching this closely."
As in the October report, Bank of America expects noise in the non-farm payroll report data due to storms in the Southeast and the strike at Boeing. The company expects that the U.S. will add more jobs in November than market consensus, reaching 240,000, of which 100,000 new jobs are a result of the dissipating effects of storms and strikes. In contrast to Bank of America's forecast, the market predicts an addition of 195,000 jobs in November, compared to 12,000 in October.
In this regard, Bank of America warns that given the severe revisions to previous non-farm payroll numbers, the bank wrote, "We recommend a cautious approach to the initially released data, and to place more trust in the data after the first and second revisions once more data is collected."
Regarding the Federal Reserve, the market expects the Fed to cut interest rates again after the meeting on December 18. However, Bank of America stated that if the CPI data released before the meeting shows another significant month-over-month increase, "the Federal Reserve may find it difficult to continue lowering interest rates."
Article reposted from: Jin Ten Data