Non-farm payrolls reclaim top data status as biggest source of volatility for US stocks

According to an analysis by Bank of America Global Research, the sensitivity of S&P 500 futures to US employment reports has surpassed that of inflation data. In a report published on September 2, analysts at Bank of America said: "The non-farm payrolls report has re-emerged as the most important data for the stock market." They noted that all eyes would be on the August non-farm payrolls report, which would be released by the Bureau of Labor Statistics on Friday. According to Bank of America's research, S&P 500 futures now have a sensitivity to consumer price index (CPI) inflation data that is "at a historic low since the pandemic", while the non-farm payrolls report has become a bigger source of volatility. With inflation falling sharply from its peak in 2022, investors are now closely watching for signs of a weakening labor market. A chart from the bank shows the reaction of eMini S&P 500 futures contracts in the five minutes before and 30 minutes after the release of non-farm payrolls and CPI data, based on six-month averages. Bank of America's analysts noted: "The market seems more excited about the prospect of the Fed cutting rates this year than about concerns about a potential recession." They said the August rebound in the US market was a reflection of this trend. Therefore, they wrote, "hot non-farm payrolls data poses a greater risk to the stock market this week." At the same time, the bank's report noted that the US economy remains robust. Data released on Tuesday showed that US factories were still sluggish in August despite a slight rebound in the Institute for Supply Management's index of manufacturing activity, which tracks the US manufacturing sector. Thomas Ryan, a North American economist at Capital Economics, said in a report on the ISM manufacturing index: "Despite the weak survey, our tracking of third-quarter GDP growth based on hard data remains at 2.5% year-on-year." The US Bureau of Economic Analysis estimated in late August that the US economy expanded at a revised annual rate of 3% in the second quarter. Bank of America's analysts said: "Growth has indeed slowed compared to last year, but it is a gradual process." They noted that the latest revision of second-quarter GDP was supported by strong consumer spending growth, with consumers continuing to spend.