Why tomorrow could be a big day for the stock market

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 significant way. If nothing else, knowing an important event in advance can help investors better manage their stress and ride out any volatility in a much calmer way. As it happens, a big move could be coming. Here’s why tomorrow could be a big day for the stock market.

Important economic data

At 8:30 a.m. tomorrow, the US 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 US economy added in the previous month that just ended. People usually refer to this as the “jobs ratio”.

The jobs report details many important data that help paint a picture of the labor market that is critical to many investors and economists, including the Federal Reserve. The jobs report shows how many jobs the US economy added in the previous month, the new unemployment rate and other indicators such as wage growth. Remember, consumer spending accounts for 68% of the US economy, so the state of the labor market is an important factor in consumer health.

You can bet Fed Chairman Jerome Powell will be paying close attention to the data tomorrow as he and the rest of the Federal Open Market Committee try to carve out a path forward for his interest rate-cutting campaign, which began with a cut of half a point. a few weeks ago. While the Fed will likely continue to cut interest rates, perhaps the bigger question is how much?

Conformable CME Group FedWatch Tool, more than 61% of traders earlier this week bet 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 drop to a target range of 2.75% to 3% by December 2025. Tomorrow’s jobs report could change the entire trajectory of the forward curve and how the market perceives the way forward of the Fed.

If the jobs report shows a weaker-than-expected labor market, the Fed may become concerned about a looming recession and be more likely to cut more than it just did done or even lower interest rates more than the market expects in the long run. However, if the jobs report shows a stronger labor market, the Fed may not cut rates as much because it will not want to overstimulate the economy and risk reigniting inflation.

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What to look for

Estimates vary slightly, but most economists expect the US economy to have added between 140,000 and 150,000 jobs in September. The unemployment rate of 4.2% is also expected to remain at that level or rise 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 a sense, investors may want to see a weaker-than-expected labor market. However, the market in recent months has been sensitive to any signs of a potential recession. A weaker labor market may revive these fears. A stronger-than-expected jobs report could bolster the case that fewer interest rate cuts are needed, which investors may not like. But that would also show a stronger economy that isn’t on the brink of recession, which investors could cheer. With the market’s view of the Fed, the trajectory of interest rates and the economy all quite favorable at the moment, I suspect that no surprise from tomorrow’s jobs report could win the day.

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 screen certain positions based on what will happen tomorrow, but volatility has become a fairly consistent part of the market in recent years. It is usually just a small obstacle on a much longer road.

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Why Tomorrow Could Be a Big Day for the Stock Market was originally published by The Motley Fool