American Exceptionalism: Jobs Report Boosts Stocks to New Highs, BofA Says

The 'American exceptionalism' trade has been on a roll, propelling U.S. stocks to record highs, and a strong jobs report this week could further fuel this momentum, according to Bank of America (BofA). The correlation between U.S. equities and the dollar has surged to its highest level since 2017, indicating renewed investor confidence in the U.S. economy. Since the election, U.S. equities have outperformed international stocks by three percentage points, while the U.S. dollar has appreciated by 2.9%. BofA expects a robust November jobs report, with nonfarm payrolls increasing by 240k, reflecting normalization from temporary disruptions and stable wage growth.

The correlation between international equities and the dollar has declined, creating a spread that reached its second-highest level in history, only behind the spike following Trump's 2016 election victory. This trend suggests that investors are increasingly favoring the U.S. market, driven by the strength of the domestic economy and labor market. A strong jobs report this week could reinforce this trend, further boosting the 'American exceptionalism' trade.

However, it's essential to consider other factors contributing to this trend. BofA highlights that the U.S. has seen an expansion of profit margins, which may not be sustainable in the long run. Furthermore, the U.S. has also been 'exceptional' in less compelling ways, such as an explosion in government debt since 2010. While a strong jobs report can provide a short-term boost, these longer-term concerns may impact the 'American exceptionalism' trade in the future.

As investors monitor the jobs report this week, they should consider the broader context and potential risks, despite the bullish outlook. A balanced perspective, taking into account both short-term market trends and long-term fundamentals, is crucial for making informed investment decisions. By staying analytical and adaptable, investors can capitalize on the ongoing market growth while being mindful of potential challenges ahead.