US jobs data could spark move into lower-profit stocks, Goldman says

A SOLID US jobs report at the end of the week could spur a rotation from the market’s most profitable names into stocks with weaker earnings, said Goldman Sachs strategists.

A strong US Labor Department jobs report on Friday (Oct 4) could prompt some investors to “price lower odds of substantial labour market weakening”, leading them to “rotate out of expensive ‘quality’ stocks into less-loved lower quality firms”, the team led by David Kostin wrote.

US equities have returned to record highs as investors bet the economy can avoid a recession, supported by looser monetary policy. The nonfarm payrolls report is the main focus for markets this week, and is expected to show a healthy, yet moderating, labour market.

Bloomberg’s factors-to-watch analysis showed that a “quality strategy”, that sees investors target the most profitable equity names, has been among the top five best-performers in the US this year. 

Morgan Stanley’s Michael Wilson also flagged recently that the labour market will be a bigger driver of stocks than the outlook for interest rates. On Sunday, the strategist reiterated his preference for large-cap stocks and higher-quality sectors. BLOOMBERG