Louis Krauskopf
NEW YORK (Reuters) – Investors’ hopes for a soft landing for the U.S. economy will be tested next week as the government releases closely watched labor market data after a series of disappointing jobs numbers.
Wall Street’s benchmark S&P 500 index has risen 20% since the beginning of the year and is near an all-time high. As the third quarter ends on Monday, the index is on track to post its best January-to-September performance since 1997.
The gains were fueled by hopes for a soft landing for the Fed to rein in inflation without significantly hurting growth, and by the 50 basis point rate cut the Fed announced at its monetary policy meeting this month.
Some fear the rate cuts won’t be enough to avert a recession, and Wall Street views the monthly jobs report as one of the most important indicators about the economy. The past two monthly reports have shown weaker-than-expected job growth, raising hopes for the October 4th data.
“Stock prices are pricing in a Goldilocks/soft landing type scenario,” said Wasif Latif, president and chief investment officer of Sarmaya Partners. “Employment statistics can either confirm that or derail it.”
Several recent jobs reports have spooked markets, particularly data showing an unexpected economic slowdown, which led to a multi-day sharp decline in the S&P 500 in early August. The index has since recovered these losses and continues to hit new highs.
Nonfarm payrolls are expected to rise by 140,000 in the September report due next week, Reuters data showed on Friday.
The labor data could help solidify views on the Fed’s next action at its Nov. 6-7 meeting. Futures tied to the federal funds rate are now almost evenly split between a 25 basis point cut or an additional 50 basis point cut.
“The totality of data is always important, but future labor market data will weigh on us to give the Fed more confidence that the softening trend is stabilizing,” Deutsche Bank economists wrote in a recent note. Deaf,” he said.
Investors will also keep an eye on Fed Chairman Jerome Powell, who will address the economic outlook at the National Association for Business Economics on Monday.
Historically speaking, the strong rally in U.S. stocks so far this year bodes well for the rest of 2024.
Since 1950, the S&P 500 index has risen at least 15% through September 17 times, said Keith Lerner, co-chief investment officer at Trust Advisory Services. Lerner said the index rose a median of 5.4% in the fourth quarter of the year, with gains in all but three quarters.
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Still, the U.S. growth situation remains a focus for investors. A U.S. recession was cited as the market’s biggest “tail risk” in a survey of fund managers earlier this month, according to BofA Global Research.
Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, said recent strength in defensive sectors such as utilities and consumer staples reflects concerns about a looming recession. .
On the other hand, strong economic data could provide a tailwind for economically sensitive groups such as industry and finance, he said. The S&P 500’s industrial sector rose nearly 11% in the quarter, while the financial sector rose about 10%.
“There’s still going to be an argument that we’re pricing in too much recession risk at this point,” Melson said. “There is plenty of room for further gains towards the end of the year.”
(Reporting by Louis Krauskopf; Editing by Ira Iosebashvili and David Gregorio)
