Non-farm payrolls reclaim the "most important data" throne as the biggest source of volatility for US stocks

According to a report from the Zhitong Finance and Economics APP, based on the analysis by Bank of America Global Research, the sensitivity of S&P 500 index futures contracts to US employment reports has surpassed the reaction to inflation data.

In a report released on September 2nd, analysts from Bank of America stated, "The non-farm payroll report has once again become the most important data for the stock market." They mentioned that all eyes this week will be on the August non-farm payroll report, which will be released by the US Bureau of Labor Statistics on Friday.

Based on Bank of America's research, the sensitivity of S&P 500 futures contracts to Consumer Price Index (CPI) inflation data has dropped to "the lowest level since the COVID-19 pandemic," with non-farm payroll reports becoming a bigger source of volatility. With inflation sharply falling from its peak in 2022, investors are now closely watching for signs of softening in the labor market.

A chart from the bank shows the reaction of eMini S&P 500 continuous futures contracts to non-farm payroll and Consumer Price Index data in the 5 minutes before and 30 minutes after the release, based on a six-month average.

Bank of America analysts noted, "Stock markets seem more excited about the prospect of Fed rate cuts this year than concerns about a potential economic downturn." They stated that the market rebound in August in the US is a reflection of this trend. Therefore, they wrote that this week, "hot non-farm payroll data poses greater risks to the stock market." At the same time, the bank's report pointed out that the US economy remains robust.

Data released on Tuesday showed that despite a slight rebound from an eight-month low, the August factory index tracked by the Institute for Supply Management (ISM) still indicates a sluggish state for US manufacturing.

Thomas Ryan, North American economist at Capital Economics, stated in a report on the ISM manufacturing index, "Despite weak survey results, our tracking of third-quarter GDP growth based on hard data remains at an annualized 2.5%."

The US Bureau of Economic Analysis estimated at the end of August that the US GDP for the second quarter expanded at a revised annualized growth rate of 3%.

Bank of America analysts said, "Growth has indeed slowed compared to last year, but this is a gradual process." They pointed out that the latest revised estimate for second-quarter GDP was supported by strong consumer spending, with consumers continuing to maintain their expenditures