It’s nearly impossible to time the market, so investors shouldn’t bother. However, it’s a good idea for investors to be aware of big events that could move the market — and potentially their portfolio — in a big way. If nothing else, knowing about a big event in advance can help investors manage their stress better and ride out any volatility in a much calmer manner. As it happens, a big move could be approaching. Here’s why tomorrow could be a big day for the stock market.
At 8:30 a.m. tomorrow, the U.S. Bureau of Labor Statistics will release its monthly nonfarm payrolls report for September. This occurs on the first Friday of each month, detailing how many jobs the U.S. economy added in the preceding month that just concluded. People typically refer to this as the “jobs report.”
The jobs report details many important data points that help paint a picture of the labor market, which is critical for many investors and economists, including the Federal Reserve. The jobs report shows how many jobs the U.S. economy added in the preceding month, the new unemployment rate, and other metrics like 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 the health of the consumer.
Image source: Getty Images.
You can bet that Fed Chair Jerome Powell will pay close attention to the data tomorrow, as he and the rest of the Federal Open Market Committee try to forge a path ahead for its interest rate-cutting campaign that began with a half-point cut just a few weeks ago. While the Fed is likely to continue cutting interest rates, perhaps the biggest question is by how much?
According to CME Group’s 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 federal funds rate to fall to a target range of 2.75% to 3% by December 2025. The jobs report tomorrow could potentially change the whole trajectory of the forward curve and how the market perceives the future path of the Fed.
If the jobs report shows a weaker labor market than expected, the Fed may grow concerned about a looming recession and may be more likely to do larger cuts like the one it just did or even lower interest rates more than the market expects long-term. However, if the jobs report shows a stronger labor market, the Fed may not cut rates as much because it won’t want to stimulate the economy too much and risk potentially reigniting inflation.
Estimates vary slightly, but most economists expect the U.S. economy to have added between 140,000 and 150,000 jobs in September. They also expect the unemployment rate of 4.2% to remain at that level or tick up slightly to 4.3%.
It is difficult to know how the market will react to either situation. Lower interest rates generally support higher stock prices, so in one sense, investors may want to see a weaker-than-expected labor market. However, the market in recent months has been touchy on any signs of a potential recession. A weaker labor market may revive those fears. A stronger-than-expected jobs report could bolster the claim that fewer interest rate cuts are needed, which investors may not like. But that would also show a stronger economy not on the brink of recession, which investors might cheer. With the market’s view of the Fed, the trajectory of interest rates, and the economy all pretty favorable right now, I suspect that no surprises from the jobs report tomorrow might win the day.
But again, I don’t know. Long-term investors should be aware that there could be some volatility tomorrow. Most probably don’t need to do anything. Some may want to examine certain positions based on what happens tomorrow, but volatility has become a fairly consistent part of the market in recent years. It usually is just a small obstacle on a much longer road.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.
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