(Bloomberg) — Stocks seesawed ahead of U.S. jobs data that will be key in determining the size of a Federal Reserve rate cut in September.
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In a choppy session, the S&P 500 ended lower, despite a rally in a handful of big tech companies. Treasury yields dipped slightly, and traders still estimate the Fed will take more than 100 basis points of policy this year, implying a possible large taper. Given Jerome Powell’s recent emphasis on the labor market, many on Wall Street say Friday’s U.S. payrolls figures will dictate whether the Fed cuts 25 or 50 basis points this month.
For Steve Sosnick of Interactive Brokers, a “Goldilocks” scenario around consensus – “not too hot, not too cold” – is what stock market optimists need.
“The danger with ‘bad news’ is that even if the Fed is prepared to react aggressively, it might be too late to prevent real economic weakness,” he said. “But there is concern that if the news is ‘too good,’ the Fed might be reluctant to cut rates as quickly as the market has come to expect.”
In the run-up to the figures, economic data was mixed. U.S. services expanded at a modest pace, businesses added the fewest jobs since early 2021, while jobless claims came in below estimates.
“After today’s mixed numbers, tomorrow’s jobs report will give investors a clearer view of the state of the labor market,” said Chris Larkin of E*Trade at Morgan Stanley. “Markets are still trying to figure out whether the economy is slowing too much and whether the Federal Reserve is overdue.”
The S&P 500 fell 0.3%. The Nasdaq 100 was little changed. The Dow Jones Industrial Average fell 0.5%. A gauge of the “Magnificent Seven” megacaps rose 1.6%. The Russell 2000 fell 0.6%. U.S. 10-year bond yields fell three basis points to 3.73%. The dollar fell.
In corporate news, Nvidia Corp. rose, and Bank of America Corp. analysts said the recent drop created a buying opportunity. Tesla Inc. capitalized on plans to launch its driver assistant in China and Europe. Late in the day, Broadcom Inc. slumped on a lackluster outlook.
Following a disappointing jobs report last month, it’s no surprise that investors are “nervous” ahead of Friday’s data, according to eToro’s Bret Kenwell.
“While current odds favor a 25 basis point cut at the Fed’s September meeting, a woefully disappointing jobs report could shift those odds in favor of a 50 basis point cut,” he said. “If the Fed feels compelled to go straight to a 50 basis point cut, it may suggest there is greater concern about the labor market than previously acknowledged.”
Kenwell says the ideal would be to see a “better than feared” report on Friday, showing a somewhat softening (but not weak) labor market that would allow the Fed to introduce a series of 25 basis point rate cuts.
For Andrew Brenner of NatAlliance Securities, if the economy shows strength in nonfarm payrolls, stocks should do better initially, but if rates “crash,” that won’t be good. Conversely, if rates rise because of a weak number, that won’t be good for stocks either.
“So we are in a situation where if you lose, you lose,” Brenner concluded.
The jobs report is expected to show payrolls rose by about 165,000, according to the median estimate in a Bloomberg survey of economists. While that’s up from a modest 114,000 increase in July, average growth over the past three months would slow to just over 150,000, the lowest since early 2021.
A survey by 22V Research shows that most investors (44%) think the market reaction to Friday’s data will be “risk-on,” 27% said it will be “risk-off,” and 29% will be “negligible/mixed.”
The tally also underscored a notable shift: The unemployment rate received more attention this month. Meanwhile, the focus on wage growth has declined even further. And 52% of respondents expect payrolls to exceed the projection of 165,000.
For Evercore’s Stan Shipley, Thursday’s ADP private employment report and other labor market metrics suggest a “soft payroll” for August.
“Tomorrow’s payrolls report could be weaker than expected given the slowdown in ADP estimates,” said Jeffrey Roach of LPL Financial. “If the payrolls report surprises investors and turns out to be weaker than expected, it increases the likelihood of a 50 basis point cut at the next Fed meeting.”
While the ADP report has been a poor predictor of nonfarm payrolls in recent years, its correlation with the figure has improved this year.
Company Highlights:
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JetBlue Airways Corp. raised its sales forecast for the current quarter after the airline said it benefited from new bookings by passengers from rival airlines whose flights were disrupted by a technology outage in July.
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Verizon Communications Inc., which agreed to buy Frontier Communications Parent Inc. for about $9.59 billion in cash, said it is focused on paying down debt while working to close the deal.
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Paramount Global, the parent company of CBS, will be controlled by software billionaire Larry Ellison after a group led by his son David completes a purchase of the Redstone family’s stake in the film and television company, according to a regulatory filing.
Key events of this week:
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Eurozone GDP, Friday
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US Nonfarm Payrolls, Friday
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Fed’s John Williams speaks on Friday
Some of the main movements in the markets:
Stocks
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The S&P 500 fell 0.3% as of 4 p.m. New York time.
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The Nasdaq 100 was little changed
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The Dow Jones Industrial Average fell 0.5%
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The MSCI World Index fell 0.3%
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The Bloomberg Magnificent 7 Total Return Index rose 1.6%
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The Russell 2000 index fell 0.6%
Coins
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.2% to $1.1105
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Sterling rose 0.2% to $1.3171
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The Japanese yen rose 0.2 percent to 143.45 per dollar.
Cryptocurrencies
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Bitcoin fell 3.4% to $56,090.69
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Ether fell 3.6% to $2,365.8
Captivity
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The yield on 10-year Treasury bonds fell three basis points to 3.73%.
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The yield on 10-year German bonds fell two basis points to 2.21%.
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The yield on 10-year British bonds fell two basis points to 3.91%.
Raw materials
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West Texas Intermediate crude little changed
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Spot gold rose 0.8% to $2,515.75 an ounce
This story was produced with assistance from Bloomberg Automation.
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