Wall Street Awaits Employment Report
Next week, all eyes on Wall Street will be on the upcoming employment report. With investors feeling a bit uneasy about potential market pullbacks, the September non-farm payroll report, set to drop on Friday, is poised to have a significant impact. It’s crucial for shaping the Federal Reserve’s monetary policy path, which currently predicts two interest rate cuts in 2025—just like the Fed outlined in its last meeting. Recent stock gains have largely been attributed to these forecasts, but the outlook is contingent on what’s revealed in the pending reports. Investors are particularly focused on Friday’s employment figures, hoping they find that “sweet spot.” They need it to be not too strong—risking a hawkish shift from policymakers—and not too weak, indicating an economic slowdown.
Marta Norton, chief investment strategist at Empower Investments, puts it succinctly: “If the jobs report looks strong, you might think, ‘Oh no, where’s my rate cut?’ On the other hand, if work numbers drop significantly, then the fear of recession kicks in.” There’s even a chance that Friday might not see an employment report at all—if Democrats and Republicans can’t agree on the federal funding bill, a government shutdown could delay these vital non-farm payroll updates past September 30th.
The employment figures for September are likely to reflect new norms. Gone are the days of seeing numbers between 150,000 and 200,000. Instead, recent months have showed a decline, with only 22,000 jobs added in August and 73,000 in July. Notably, June saw a loss of 13,000 jobs, marking the first negative print since the pandemic’s peak. Economists are now anticipating Friday’s report may indicate just 59,000 jobs added, keeping the unemployment rate steady at 4.3%, according to FactSet’s consensus. Some even suggest a second negative reading this year isn’t out of the realm of possibility. The market might handle disappointing numbers, as long as they don’t veer too far from what’s needed for steady growth.
Gregory Daco, the chief economist at Ey-Parthenon, mentions a potential range of 0 to 50,000 jobs. Yet, he warns that strong numbers could land anywhere between 50,000 and 150,000, which might influence interest rate expectations. “I believe we see increasing polarization among Fed policymakers,” Daco notes. The upcoming report will be vital in determining whether these data-sensitive policymakers prefer consecutive rate cuts in October.
As October approaches, Wall Street is reflecting on the preceding month. September ended on a high note with solid gains: the Nasdaq Composite rose 4.8%, the Dow Jones industrial average increased by 1.5%, and the S&P 500 climbed 2.8%. However, the main indexes closed out the week with losses, stifled by technology stock declines. The looming possibility of a government shutdown also adds to the uncertainty. House minority leader Hakeem Jeffries mentioned that they wouldn’t be “blackmailed” by threats from the Trump administration regarding preparations for federal agency responses.
If a shutdown does occur, it would lead to far-reaching consequences, including delayed economic data releases. And even without this potential crisis, October tends to be a more turbulent month for markets. Historically, it’s been known for prominent crashes—1987, 1997, and 2008 come to mind. Additionally, current market valuations give investors pause. The S&P 500 is trading at over a 22-month forward multiple, making it susceptible to short-term declines.
“The market can keep climbing, but timing is tricky,” Norton adds. She reflects on the mixed performance of her portfolio, noting that while some stocks are on the rise, others seem stagnant, prompting her to consider a little rebalancing. “In a market like this, with strong momentum yet high valuations, it’s a sensible approach.”
Looking ahead to next week, a range of important dates include: the Pending Home Sales Index and Home Sales for August, the ADP Employment Survey for September, and the ISM Services PMI for September. These indicators will provide more insight into the economic landscape as October unfolds.
