Fundstrat‘s Head of Research Tom Lee predicts a Federal Reserve policy pivot following Goldman Sachs’ warning about historic job data revisions, as July employment figures reveal the largest two-month downward adjustment outside recessions since 1968.
Goldman Flags Historic Job Data Revisions
Goldman Sachs economists highlighted that recent job report revisions represent the most significant adjustments in 57 years outside recession periods. The investment bank’s research note warned clients to expect additional large revisions in upcoming reports.
The net downward revision of 258,000 jobs for May and June payrolls marked the largest two-month adjustment since 1968, according to Goldman’s analysis. These revisions were split between public and private sector positions, with state and local government cuts accounting for 109,000 of the total reduction.
Fed Pivot Arguments Gain Momentum
Lee responded to CNBC’s Brian Sullivan on X Sunday, writing: “Fed has a dual mandate: jobs and inflation. Goldman notes these job report revisions so large, haven’t seen in 57 years. This strengthens the case labor market is further away from Fed mandate than Fed realizes.”
Lee concluded his assessment by stating, "To me, reads as Fed pivot is coming = supportive of higher PE [price-to-earnings ratio]," suggesting equity valuations could rise as lower interest rates reduce discount rates and increase investor appetite for risk assets.
Market Pressure Mounts on Powell
July’s employment report showed just 73,000 new jobs, falling short of the expected 110,000. The unemployment rate increased to 4.2%, while wage growth remained elevated at 3.9% year-over-year.
Markets now fully price in two rate cuts by December, with September cut odds surging to 76% following Friday’s data release. Two-year Treasury yields plunged 22 basis points to 3.75%, marking the largest intraday drop since August 2024.
Economic Warning Signs Intensify
Former Treasury Secretary Lawrence Summers warned the economy is “closer to stall speed than we thought,” citing the possibility of recession. University of Michigan economist Betsey Stevenson linked labor market weakness to current administration policies affecting education, government, construction, and hospitality sectors.
Goldman Sachs estimates benchmark revisions could show a downward adjustment of 550,000 to 950,000 jobs when preliminary data is released on September 9, potentially reducing monthly payroll growth estimates by 45,000 to 80,000 positions over the past year.
On Friday, major U.S. equity indexes closed sharply lower across the board. The S&P 500, as tracked by the SPDR S&P 500 ETF (NYSE:SPY), fell 101.38 points, or 1.60%, to end the session at 6,238.01.
The Dow Jones Industrial Average, represented by the SPDR Dow Jones Industrial Average ETF (NYSE:DIA), declined 542.40 points, or 1.23%, closing at 43,588.58. Meanwhile, the Nasdaq-100, tracked by the Invesco QQQ Trust (NASDAQ:QQQ), posted the steepest loss, dropping 454.81 points, or 1.96%, to settle at 22,763.31.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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