Jobs report could complicate Fed’s rate plans

In the world of David Daglio, manager of the Dreyfus Opportunistic Midcap Value fund, a U.S. economy that is “slowly getting better” coupled with the Federal Reserve staying “moderately accommodative” is the not-too-hot, not-too-cold setup he views as the most stock market friendly.

That brings us to Friday’s jobs report, a closely watched data point that Daglio says “gives us the most accurate picture in real time as to what is happening with the economy today.”

Healthy job gains expected despite weak report

Wall Street economists are again forecasting job gains of around 200,000 in April. And Daglio, who says he and other market participants, including the Federal Reserve, look at the full accumulation of data points to assess the condition of the economy, says the closer the jobs number is to consensus, the better it is for the stock market.

“Too hot or too cold would not be equity market friendly,” Daglio told USA TODAY.

If the number of jobs created last month comes in super strong, it could put more pressure on the Fed to hike interest rates. “If we have outside economic surprises on the strong side it does make their job more difficult,” Daglio says, adding that it would also suggest the bond market is behind the curve on rates, which could push rates up, a scenario that in the short-term has “not been very good for risk assets.”

If the jobs report comes in rally weak, that’s bad, too. Why? “Then worries of transmission from (economic weakness around) the rest of the globe are correct.”

Adam Shell on Twitter: @adamshell.