U.S. jobless claims hit 8-month high: what does it mean for stock market?

By:
on Jul 21, 2022
  • U.S. unemployment claims hit an eight-month high of 251,000 last week.
  • Morgan Stanley's Shalett warns the stock market has not bottomed yet.
  • The benchmark S&P 500 index is now up roughly 9.0% from its recent low.

S&P 500, on Thursday, ended in the green again after the weekly jobless claims hit an eight-month high of 251,000.

How does that fit into the macro picture?

In comparison, the Dow Jones estimate was for 240,000 only. Now, unemployment tends to relate inversely with inflation. Last week’s number, therefore, might add to the broader narrative that the inflation has indeed peaked.

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If so, bulls would argue the U.S. central might turn less hawkish in the coming months, creating room for the start of the new bull market.

Who’s not buying the whole narrative, however, is Lisa Shalett. She’s the Chief Investment Officer at Morgan Stanley Wealth Management.

A lot of the stocks in the S&P 500 have not fully priced in a [recession]. So, the recent bear market rally may be a bit premature given the outlook for growth continues to look pressured moving forward.

Fed unlikely to turn less hawkish anytime soon

More importantly, she said this morning on CNBC’s “Squawk on the Street”, peak inflation does not automatically translate to a less hawkish Fed, especially when the CPI stands at a decades-high of 9.10%.

If we have 0% on headline CPI for the next eight months, arithmetically, it’ll still be at 5.0%. Wages in the U.S. are also growing at 5.0% YoY. So, just neutralising inflation on average consumer will take a while.

Therefore, considering the massive slot between inflation and the Federal Funds rate, she added, it’s only “wishful” to assume the central bank would choose to go easy on the interest rates anytime soon.

Shalett sees between 5.0% and 15% downside in the benchmark index by the end of 2022.

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