These analysts say October's jobs report may see some "distortion." Here's why

Investing.com -- Investors are looking ahead to a busy week of key economic figures and quarterly returns from several megacap technology stocks.

So far this year, the S&P 500 has jumped by more than 22%. Meanwhile, according to LSEG data cited by Reuters, the benchmark index's price-to-earnings ratio -- a gauge of earnings estimates for the next 12 months -- stood at 21.8 late last week, close to the highest level in more than three years.

The staying power of these frothy valuations could likely be tested by the confluence of figures and earnings this week -- as well as the ongoing uncertainty surrounding the outcome of the crucial US presidential election on Nov. 5.

On the data front, the latest employment report for October is tipped to show that the US economy added jobs at a slower rate in October. Economists see nonfarm payrolls at 111,000, down from 254,000 in the prior month.

Crucially, much of the projected slowdown can be linked to recent catastrophic hurricanes that crashed into the US South and ongoing strikes by roughly 33,000 employees of aerospace giant Boeing (NYSE:BA ), analysts at Bank of America Securities argued in a note to clients.

"Therefore, we recommend not overreacting to soft prints," they said. "Indeed, we expect a soft payroll print [...] due in part to at least a [50,000-job] drag from strikes and hurricanes."

Any major reaction to the payrolls number should be "faded" due to this distortion and the possible volatility stemming from the upcoming US election, they said. A fade is an investment strategy that involves trading against a prevailing market trend.

Elsewhere, 170 S&P 500 companies are due to report results this week, accounting for around 47% of the index's market capitalization.

Among these firms will be many of the so-called Magnificent Seven tech groups, including Google-parent Alphabet (NASDAQ:GOOGL ), software giant Microsoft (NASDAQ:MSFT ), Instagram-owner Meta Platforms (NASDAQ:META ), iPhone-maker Apple (NASDAQ:AAPL ) and e-commerce behemoth Amazon (NASDAQ:AMZN ). Electric carmaker Tesla (NASDAQ:TSLA ) posted better-than-expected earnings last week, while artificial intelligence-darling Nvidia (NASDAQ:NVDA ) is set to unveil its latest figures on Nov. 20.

"We continue to expect more actions at the single stock level than at the index level – it’s a stock picker’s paradise," the BofA analysts said.

Source: Investing.com