It is almost impossible to time the market, so investors should not worry about it. However, it’s a good idea for investors to be aware of major events that could move the market – and potentially their portfolio – in a big way. If nothing else, knowing in advance about a major event can help investors better manage their stress and weather any volatility in a much calmer way. It may happen that a big step is coming. This is why tomorrow could be a big day for the stock market.
Key economic data
Tomorrow at 8:30 a.m. the U.S. Bureau of Labor Statistics will release its monthly nonfarm payrolls for September. This happens on the first Friday of each month, detailing how many jobs the U.S. economy added in the previous month, which just ended. People usually call this the “jobs report.”
The jobs report contains many key data points that help paint a picture of the labor market, which is critical to many investors and economists, including the Federal Reserve. The jobs report shows how many jobs the U.S. economy added last month, the new unemployment rate and other measures such as wage growth. Remember, consumer spending makes up 68% of the U.S. economy, so the state of the labor market is a big driver of consumer health.
You can be sure that Fed Chairman Jerome Powell will be paying close attention to the numbers tomorrow as he and the rest of the Federal Open Market Committee try to chart a path forward for the rate-cutting campaign that began with a half-point cut. a few weeks ago. While the Fed will likely continue to cut rates, perhaps the biggest question is to what extent?
According to CME Group FedWatch Tool, more than 61% of traders earlier this week were betting on a quarter-point cut by the Fed in November, and then another half-point at the Fed’s December meeting. Traders expect the fed funds rate to fall to a target range of 2.75% to 3% in December 2025. Tomorrow’s jobs report could potentially change the entire trajectory of the forward curve and the way the market perceives the Fed’s future path.
If the jobs report shows that the labor market is weaker than expected, the Fed may become concerned about a looming recession and may be more likely to make bigger cuts, as it just did, or even cut rates even further than the market expects in the long term. However, if the jobs report shows a stronger labor market, the Fed may not cut rates as much, as it does not want to stimulate the economy too much and risk a possible resurgence of inflation.
What to pay attention to
Estimates vary somewhat, but most economists expect the U.S. economy to add between 140,000 and 150,000 jobs by September. They also expect the unemployment rate to remain at that level of 4.2% or rise slightly to 4.3%.
It is difficult to predict how the market will react to either situation. Lower interest rates generally support higher stock prices, so in a sense, investors may want to see a weaker-than-expected labor market. However, the market has been sensitive to signs of a possible recession in recent months. A weaker labor market could revive these fears. A stronger-than-expected jobs report could support the claim that fewer rate cuts are needed, which investors may not like. But that would also indicate a stronger economy that is not on the brink of recession, which investors could welcome. With the market view on the Fed, the rate trajectory and the economy being quite favorable at the moment, I suspect no surprise from tomorrow’s jobs report will win out.
But again, I don’t know. Long-term investors should be aware that there could be some volatility tomorrow. You probably don’t need to do anything. Some may want to explore certain positions based on what happens tomorrow, but volatility has become a fairly consistent part of the market in recent years. Usually it’s just a small obstacle on a much longer road.
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Bram Berkowitz has no positions in the stocks mentioned. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.
Why Tomorrow Could Be a Big Day for the Stock Market was originally published by The Motley Fool
