A crucial U.S. labor market report due next week will serve as a major test for investor confidence and the record-breaking equity market. The data will provide a significant read on the economy’s health and either bolster or undermine the prevailing investor view that the Federal Reserve will soon begin cutting interest rates. This expectation has been a primary driver behind the recent rally that has lifted U.S. stocks to all-time highs.
The anticipation for rate cuts was fueled by last month’s surprisingly weak payrolls data, which heightened expectations that the Fed will act to support the labor market at its September meeting. According to Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, another soft employment report for August could raise concerns about an economic slowdown. However, it might also lead markets to price in more aggressive monetary easing, a trade-off that could ultimately support stocks.
This economic indicator arrives during a historically volatile period for markets. September has been the worst-performing month for the S&P 500 over the past 35 years, with an average decline of 0.8%. Despite this seasonal headwind, the benchmark index has advanced nearly 10% year-to-date, powered by investor resilience in the face of trade war anxieties and widespread optimism about artificial intelligence’s business potential.
According to a Reuters poll, economists expect the report to show employment grew by 75,000 jobs in August. This follows the prior month’s gain of just 73,000 jobs—a number that was itself considered unexpectedly weak and was compounded by sharp downward revisions to the previous two months of data. The report’s outcome will immediately shape expectations for the Fed’s next policy move and set the tone for markets in a precarious month.
