You are currently viewing Why the jobs report could sink the stock market, says a big Wall Street bear

Why the jobs report could sink the stock market, says a big Wall Street bear

The July jobs report was so unexpected on Friday — more than doubling expectations — that it could prompt the Federal Reserve to be much more aggressive on interest rate hikes than market watchers thought a day earlier.

If so, would this set the stage for a possible rapid decline in stocks?

“I think that’s the case at the S&P level for the index,” Wall Street’s top bearish strategist, Morgan Stanley’s Mike Wilson, told Yahoo Finance (video above) when asked if the employment report was an information sale type event.

Wilson added that the broad conditions — ranging from slowing corporate earnings growth to rising rates to killer inflation — are in place for the S&P 500 to hit June lows in the fall.

Such a predicted move would see the S&P 500 lose at least 8% from current levels.

Wilson continues to guide clients into more defensive areas of the market and does not object to holding more cash than normal. If the selloff occurs, according to Wilson, we could see the start of a new bull market in 2023.

Either way, investors will have to endure trying to make sense of otherwise puzzling economic data and what it means for Fed policy.

The US economy added 528,000 jobs in July, the Bureau of Labor Statistics reported today, as an additional 250,000 jobs are expected. This dizzying increase in jobs marks a significant milestone for the US economy as pre-pandemic employment is now fully restored.

Job gains were widespread and punctuated by an increase of 96,000 jobs in leisure and hospitality, underscoring strong demand for travel, as Marriott CEO Anthony Capuano revealed on Yahoo Finance Live this week. In addition, the average hourly wage increased by 5.2%.

“I personally don’t think that’s the case,” US Labor Secretary Mary Walsh told Yahoo Finance Live on whether the economy is currently in a recession.

A polar bear near Hudson Bay, Churchill area, Manitoba, Northern Canada (Photo by: Dennis Fast/VWPics/Universal Images Group via Getty Images)

Morgan Stanley’s Wilson offered a final warning to the bulls that emerged in July: Bear markets don’t end well.

“The last part of these bear markets is usually the most vicious, because you finally get that capitulation, which we really haven’t seen yet,” Wilson added.

Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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