TOM LEE: 'Bad news is good news for stocks.'

In the era of easy central bank policy, one of the most popular market sayings has become "bad news is good news."

The read there is that bad economic data is seen by the market as requiring central banks to either keep policy easy, or ease policy further, providing a boost to stock prices as investors seek returns in riskier assets.

And in a note to clients ahead of Friday's jobs report, Tom Lee at Fundstrat says that when it comes to the jobs report and the stock market, bad news is definitely good news.

Lee writes:

Bad news is good news for stocks. As shown, since 1996, the greater the payrolls miss, the better equities do in the following month. The historical logic is that weak payrolls means dovish Fed, which in turn, is bullish for equities. In today's context, we see this as also true: a strong read, likely fuels concerns about wage inflation and therefore negative profit margins. Thus, a downside read would in turn, be positive for stocks. In other words, a downside read is likely to be positive for stocks.

On Friday, Wall Street economists expect there to be a bounce back in payroll growth to 230,000 after March saw just 126,000 just added, almost 100,000 fewer than the Street was expecting.

The unemployment rate is expected to drop to 5.4%, but on Wednesday we highlighted commentary from economists with the Brookings Institute who have a model suggesting we could see a sharp drop in the unemployment rate, bringing the Fed closer to its "full employment" target.

Here's Lee's chart showing the outsized moves in stocks - to the upside - when the jobs report disappoints.

Screen Shot 2015 05 07 at 7.37.58 AMFundstrat

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