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August 8, 2022

Latest Jobs Data Could Make Recession Worse

Frank Cabibi

Last Friday, the US reported NFP numbers that came out much stronger than expected. This event further green-lit the Fed's path to send rates higher and topple inflation. Usually, jobs growth is good for the economy and the stock market. But, here is why it could also make the recession worse.

Bad For Business

When you see an incredible beat in jobs expectations, you probably wouldn't think about being in a recession. These two events are not correlated in a positive manner. However, it could be bad for companies in the long run.

Higher interest rates makes it harder for businesses to borrow, spend and hire new employees. NFP showed signs of a recovering economy from a really good month of job growth. If the Fed continues to be this aggressive (by 75 basis points), we will likely see businesses struggle.

What To Look For

This Wednesday's CPI report will tell us a lot about the market.

recession
USD CPI m/m

What investors are waiting on is a drop in consumer prices which haven't really been able to slow for a long period of time. CPI has gotten much worse over the span of one year. Consistent decline would be promising for the markets going forward, but we would need to see that in order to turn bullish.

recession
CPI expectations for Wednesday

Analysts heavily expect a drop in inflation this month. That paired with substantial job growth could turn the market positive and form a more bullish bias around stocks. The Fed still sees inflation way out of reach for now, but anything can happen as we wait for Wednesday's numbers to come out.

Index Setups

SPX500

recession

SPX500 rises premarket after a decent last week of earnings and job growth. Price is nearing resistance at a double top on the 1D timeframe which could uphold as strong supply. That level is also right below the 61.8% fib retracement level which could serve as another tough level to break above.

NAS100

recession

The NAS100 looks to have hit a strong falling trend line on the 1D. Price is already showing rejection on the day with a large rejection from the highs. The inverted hammer suggests a start of a deeper sell off to come. Support lies right below, however, around $12,935.

UK100

recession

The British index shows a less exciting day for stock trading after price pulled back from daily highs and is starting to look like the NAS100. Price might have started to turn downward, however, there is still room for the index to run and hit resistance at a double top around $7658.

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