The stock market is headed for a new 2022 low in October after a strong jobs report bolsters Fed’s arguments for more aggressive rate hikes, BofA says

• According to Bank of America, the stock market will hit a new low in October after September’s strong jobs report.
• The US economy added 263,000 jobs last month and the unemployment rate fell to 3.5%.
• “The only question for investors is a hard landing or a soft landing in 2023; we say a hard landing,” BofA said.

According to Michael Hartnett of the Bank of America, US stocks will hit a new low in October after September’s strong jobs report.

The US economy added 263,000 jobs last month, surpassing estimates of 255,000, and the unemployment rate fell from 3.7% to 3.5%. The jobs report only reinforced the Federal Reserve’s view that policymakers should continue to raise interest rates to soften the economy and contain inflation.

And inflation is a real problem — not just in the US, but worldwide, according to Hartnett, who estimates that nearly 2 billion people experience inflation rates of about 10%, while 1.3 billion people suffer from inflation rates above 15%.

Despite high inflation and ongoing concerns in the market, there appears to be more room for downward pressure as Hartnett pointed to some valuation extremes that could be further dampened. For example, he found that Tesla’s market capitalization is equal to that of the entire European banking sector, and that US stocks as a percentage of the MSCI World Index just hit a new all-time high of 66%.

But even Hartnett is tempted to buy stocks, given the S&P 500’s nearly 25% drop so far. of 15x, and consensus bearishness among investors.

However, despite those bullish signals, Hartnett thinks a hard economic landing in 2023 is likely. “The only question for investors is a hard landing or a soft landing in 2023; we say a hard landing,” BofA said.

The hard-landing arguments include the belief that if the Fed is indeed committed to meeting its 2% inflation target, an interest rate shock will continue to ripple through Wall Street. In past cycles of rate hikes, Hartnett noted that the average unemployment rate at the time of the last hike was 5.7%, meaning there could be job losses.

And potential job losses could put pressure on both the economy and banks. “The risk of credit events remains extremely high,” he said.