Stock Market Rally on Bad News Might End Soon, BofA Warns

Get ready, investors! Bank of America (BofA) strategists warn that the recent trend of bad economic news boosting the stock market might be nearing its end.

Here's the Breakdown:

• Recent Trend: Over the past two months, bad economic data (like a weakening US dollar) has weirdly coincided with stock market gains, particularly the S&P 500.
• Shifting Tides: BofA believes this trend could reverse if the economy weakens further. They identify a critical zone for the upcoming nonfarm payrolls (NFP) data as a tipping point.
• The Goldilocks NFP: According to BofA, NFP growth between 125,000 and 175,000 would be ideal. This wouldn't significantly impact the unemployment rate and might even be positive for stocks (assuming inflation stays under control).
• Danger Zones: NFP below 125,000 could trigger a market meltdown by reviving recession fears (think Sahm Rule*). Conversely, excessively strong growth (above 175,000) could reignite inflation anxieties.
• Unpredictable Data, Complacent Market: NFP data can be volatile, and the S&P 500 has shown significant swings on NFP release days, similar to Consumer Price Index (CPI) announcements. Despite this uncertainty, BofA sees concerning complacency in the market, with options pricing suggesting investors aren't expecting much movement on the upcoming NFP report.

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