There's a new market dynamic heading into payrolls report, Goldman trading expert says

By Steve Goldstein

Critical information for the U.S. trading day

It was the day before payrolls, when all through the house, not an asset was stirring, not even a mouse. (We will for poetic license ignore the movements in Japan; more on that later.)

   Date              Initially reported nonfarm payrolls (in thousands)  Economist expectations (in thousands)  S&P 500 reaction 
   1/6/23                                                           223                                    200             2.30% 
   2/3/23                                                           517                                    185               -1% 
   3/10/23                                                          311                                    215            -1.50% 
   4/7/23                                                           236                                    240             0.10% 
   5/5/23                                                           253                                    178             1.90% 
   6/2/23                                                           339                                    188             1.50% 
   7/7/23                                                           209                                    215            -0.30% 
   8/4/23                                                           187                                    195            -0.50% 
   9/1/23                                                           187                                    170             0.20% 
   10/6/23                                                          336                                    162             1.20% 
   11/3/23                                                          150                                    180             0.90% 
   Data: FactSet 

It's worth reviewing how markets have reacted to jobs numbers this year. In the early part of the year, good news was bad news - blowout jobs growth spooked markets, fretful of more rate hikes. That hasn't always been the case, though - particularly, as in the report released in October, when other sections of the report (average hourly earnings) were more bond friendly.

Economists polled by the Wall Street Journal expect a 190,000 rise in nonfarm payrolls - remember, there will be a boost from returning auto workers - an unchanged jobless rate of 3.9% and a 0.3% rise in average hourly earnings.

John Flood, a managing director at Goldman Sachs who works in its trading business, says there is a "new dynamic" in that the market will dislike extreme results in either direction.

A rise of more than 250,000 would lead to a sell-off in the S&P 500 SPX of at least 0.5%, but so will a gain of fewer than 50,000, he said. The sweet spot would be a rise between 50,000 and 150,000, he says, which would trigger a gain of at least 1%.

That said, there is always the possibility some other element of the jobs report could take the spotlight. It's "worth noting our best macro people think the unemployment rate is most important slice of Friday's report."

The unemployment rate has already risen a half-point from its low. Note that the Sahm Rule recession indicator is when the three-month average of the unemployment rate is at least a half point above its three-month minimum over the last 12 months, and the latest reading is 0.33%.

It would take a particularly large jump in the jobless rate, to 4.3%, to trigger the Sahm Rule with Friday's report, though it seems like the recession indicator will be triggered early next year.

The market

Japanese stocks JP:NIK fell and the yen (USDJPY) rose Thursday after comments from Bank of Japan officials helped stir expectations the country could exit its decades-long negative interest-rate policy as early as next week. Apart from that, stock futures (ES00) (NQ00) inched higher, oil (CL.1)was right around $70, and the 10-year BX:TMUBMUSD10Y was 4.15%.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor's Business Daily.

The buzz

Alphabet's (GOOGL) Google launched Gemini, a new artificial intelligence model that will be incorporated into its Bard chatbot and its Pixel 8 Pro smartphone.

Advanced Micro Devices (AMD) rolled out new chips for AI usage, in what may be the first challenge to Nvidia (NVDA).

AbbVie (ABBV) said it's going to buy Cerevel Therapeutics (CERE) in an $8.7 billion deal.

GameStop (GME) missed revenue expectations in the third quarter, as the videogame retailer said it would be able to invest in stocks, managed by new Chairman and CEO Ryan Cohen.

JetBlue Airways (JBLU) shares rose after the airline boosted its outlook.

McDonald's (MCD) CosMc's spinoff launches this month.

Initial jobless claims rose by 1,000 to 220,000. Consumer credit data will be released later in the day.

Best of the web

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Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   GME     GameStop 
   NVDA    Nvidia 
   NIO     Nio 
   AMC     AMC Entertainment 
   AAPL    Apple 
   AMD     Advanced Micro Devices 
   PLTR    Palantir Technologies 
   AMZN    Amazon.com 
   MLGO    MicroAlgo 

The chart

Retail investors are buying stocks - which is unusual for this time of year, according to analysts at Vanda Research. That "has helped smaller cap names outperform big tech, especially those stocks tied to the crypto and the software/AI space," say the analysts, who identify Marathon Digital (MARA), Riot Platforms (RIOT) and Coinbase Global (COIN) among the crypto names being purchased, alongside other companies including PDD Holdings (PDD), Workday (WDAY) and Snowflake (SNOW).

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-Steve Goldstein

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12-07-23 0834ET

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