Investing.com -- In the latest Sevens Report, analysts highlighted the importance of Friday’s jobs report, stating that “if it’s Goldilocks, it’s going to help support the market amidst all this tariff and policy noise.”
However, if the report is either too strong or too weak, it could introduce further volatility and pressure on stocks.
The report outlines three potential outcomes:
A “Too Hot” report—defined as job gains above 200,000 and an unemployment rate below 4.0%—would increase concerns that the Federal Reserve may pause rate cuts, according to Sevens.
“Given trade/policy concerns, a number this high that favors a Fed pause in rate cuts would likely cause a solid decline in stocks,” wrote Sevens. In this scenario, they believe Treasury yields would likely rise above 4.60%, the U.S. dollar would strengthen, and gold prices would fall sharply. They add that equities, particularly small caps, would likely decline, though large-cap cyclical sectors such as industrials may hold up better.
A “Just Right” outcome—job gains between 50,000 and 200,000 with an unemployment rate between 4.0% and 4.3%—would reinforce expectations of two rate cuts in 2025, with the first in June, says the firm.
Sevens Report expects a “relief rally” across major indices, led by small caps in this scenario. “Most S&P 500 sectors should also be higher, led by financials, small caps and other cyclicals,” they write, adding that treasury yields could dip below 4.30%, while the dollar would weaken modestly. Gold and other commodities would likely rally, with gold outperforming due to the softer dollar.
A “Too Cold” report—job gains below 50,000 and unemployment above 4.3%—could trigger a short-lived stock rally on expectations of faster rate cuts but ultimately lead to a “growth scare.”
Defensive sectors like utilities and healthcare could outperform, while cyclicals may decline. The 10-year Treasury yield could drop to 4.20%, and gold could rally significantly on a weaker dollar.
Sevens Report emphasizes that for markets to remain stable, “this market needs Goldilocks data to continue to hold up.”