“Throughout the week, though, the specter of the August employment report will hang over the market,” the JP Morgan Funds strategist said. “Analysts are looking for a gain of between 75,000 and 100,000 net new payroll jobs. However, the risks to this forecast should be strongly on the downside. “
He cited the Verizon strike and recent data pointing to weakness in the economy.
“Because of all of this, there is a clear risk of a negative reading on August employment growth. If markets were prepared for this, they might be able to shrug it off allowing stocks to post a second consecutive week of gains,” Kelly wrote. “But if consensus expectations don’t fall rapidly and Friday’s report is classified as a major disappointment, then markets may have some further adjustments before the gravitational pull of extreme valuations finally moves both stock prices and interest rates higher.”
SPDR S&P 500 ETF
Full disclosure: Tom Lydon’s clients own SPY.