Friday is a big day for the stock market. That’s when we see the monthly employment report. That report almost always creates volatility.
Like we did last month to prepare for the report, it’s time to review the growth in payroll tax receipts. This data is available in real time. It shows whether employers are paying more or less in taxes for their employees. That means it provides insight into the employment report.
This month, tax receipts tell us to expect a weak report. The chart below shows the change in receipts compared to a year ago. It’s adjusted for inflation and other seasonal factors.
(Source: Mathematical Investment Decisions)
This data is at odds with analysts’ expectations.
Bloomberg surveys economists to see what they expect. The average of the survey is a gain of 325,000 jobs in October. But there’s a lot of uncertainty. Estimates range from a low of 200,000 to a high of 371,000.
Even at the low end of estimates, this would mark a dramatic recovery from September, when the economy shed 33,000 jobs.
For perspective, analysts are expecting the biggest gain since May 2015, when the economy added 344,000 jobs.
A gain of 325,000 would make this the sixth-best report in the past 10 years. It would be one of the strongest gains in the past 25 years, ranking in the top 7% of all months.
OK, time for some important questions. Does this feel like one of the best months in 25 years? Does the data support that?
My answer to both questions is no. That means I expect a disappointing jobs report compared to expectations. And that means a quick sell-off in the stock market is likely.
I’m not saying the bull market is over. I am saying to expect a down day. It’s just a long-awaited and overdue pullback. Treat it as a buying opportunity.
Michael Carr, CMT
Editor, Peak Velocity Trader