Wall Street Oracle: The collapse of employment data will force a shift in Federal Reserve policy, which may support higher stock market valuations

According to the Zhitong Finance APP, after Goldman Sachs issued a warning about the historic revision of U.S. employment data, Tom Lee, co-founder and research director of the financial market research firm Fundstrat, known as the "Wall Street Oracle," stated that the Federal Reserve's policy is about to shift.

Goldman Sachs economists emphasized that the non-farm payrolls in the U.S. for May and June were collectively revised down by 258,000, marking the largest two-month downward revision in a year that has not been defined as a recession by the National Bureau of Economic Research (NBER) since 1968. This revision was almost evenly distributed between the public and private sectors. A similar slowdown in employment growth and data revision occurred in the same period last year, but the magnitude was only about half of this year's.

Additionally, Goldman warned that this data supports its judgment that the U.S. economy is currently in a "below potential trend" growth state, and the downward revisions may continue. A preliminary estimate of the non-farm payroll benchmark revision is expected to be released on September 9, with downward revisions potentially reaching 550,000 to 950,000, equivalent to lowering the monthly growth from the current 145,000 to 65,000-100,000 for the period from April 2024 to March 2025.

Tom Lee stated, "The Federal Reserve has a dual mandate: employment and inflation. Goldman points out that the magnitude of these employment data revisions is unprecedented in 57 years. This reinforces the extent to which the labor market is deviating from the Federal Reserve's mandate, and it is more severe than the Federal Reserve realizes." He added, "For me, a shift in Federal Reserve policy is imminent, which will support higher price-to-earnings ratios." His remarks suggest that as lower interest rates reduce discount rates and increase investor interest in risk assets, stock valuations may rise.

Market expectations for interest rate cuts have rapidly intensified following the release of the U.S. July non-farm payroll data last Friday. The data showed that the U.S. added only 73,000 non-farm jobs in July, far below market expectations, and the non-farm payrolls for May and June were both significantly revised down. This latest employment data signals weakness in the U.S. economy. The market has now fully priced in expectations for two rate cuts by the Federal Reserve before the end of December.

Former U.S. Treasury Secretary Summers warned that the U.S. economy is "closer to stagnation than we think" and mentioned the possibility of a recession. University of Michigan economist Betsey Stevenson linked the weakness in the U.S. labor market to current administrative policies affecting education, government, construction, and the hospitality industry