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Since Donald Trump's election win, the theme of "American exceptionalism" has gripped markets and sent bullish sentiment higher, with the S&P 500 cruising to records as international stocks lag.
That theme will continue to boost the stock market if the November jobs report this Friday comes in stronger than expected, Bank of America analysts say.
"The 'American exceptionalism' trade is gaining momentum, driven by the potential return of 'America First' policies under Trump 2.0," the analysts said in a Tuesday note, referring to Trump's proposals like widespread tariffs meant to boost manufacturing in the US.
The analysts noted that US stocks outperformed international equities by three percentage points after the election, while the dollar rallied 2.9%.
The three-month correlation between the S&P 500 and the dollar, meanwhile, has surged to its highest level since 2017, while the correlation between international stocks versus the dollar has declined.
The spread between those two correlations—a mark of strength in both US stocks and the dollar—jumped to its second highest level ever, only trailing behind the spike seen after Trump's first election win in 2016.
Those data points mark a shift toward a US exceptionalism trade, the analysts say.
"What works within equities could change if further rate cuts get priced out. However, a stronger-than-expected jobs report will likely strengthen the American exceptionalism theme, in our view," the analysts wrote.
They said nonfarm payrolls will likely get a boost of at least 100,000 as the drag on jobs growth from the hurricanes this fall and the Boeing strike dissipate, while the low response rates in October could lead to higher revisions as well.
Traders should assess those developments with caution, BofA warned.
"On the employment report, we recommend market participants tread carefully," the analysts said. "We suggest taking the first print with a pinch of salt and putting more faith in the first and second revision when more data has been collected."
Economists estimate an additional 214,000 jobs added in November, a sharp uptick from October's reading of just 12,000 new hires.
