S&P 500 falls as fears mount ahead of jobs crisis: Markets Wrap

(Bloomberg) — Stocks have given up earlier gains as Wall Street becomes nervous in the countdown to the highly anticipated U.S. jobs report.

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The S&P 500 fell for the third day in a row, despite a rally in some major technology stocks. Treasuries barely moved, and traders were expecting the US Federal Reserve to cut interest rates by more than 100 basis points in 2024. That would mean a massive decline before the end of the year.

Ahead of the US labor market figures, data showed that the US services sector expanded at a modest pace. The Institute for Supply Management’s services index remained little changed at 51.5. Values ​​above 50 indicate growth. The employment index fell to 50.2. Meanwhile, US companies created the fewest jobs since the beginning of 2021. And the number of jobless claims fell short of estimates.

“After today’s mixed numbers, investors will need to read tomorrow’s jobs report to get a clearer sense of the state of the labor market,” said Chris Larkin of E*Trade at Morgan Stanley. “We are in an environment where good news is good and bad news is bad, and markets are still trying to figure out if the economy is slowing too much and if the Fed is lagging behind.”

The S&P 500 fell to around 5,500 points. The Bloomberg Magnificent Seven index for megacaps rose by 1.5 percent. The Russell 2000 for small companies fell by 0.6 percent. The yield on 10-year US government bonds fell by two basis points to 3.74 percent. The dollar fell slightly.

Among the highlights among companies, Nvidia Corp. rose. Analysts at Bank of America Corp. said the recent drop in shares created an “enhanced” buying opportunity. Tesla Inc. rose 5% on plans to launch its driver-assistant system in China and Europe. Broadcom Inc. will report earnings after the market closes.

After a disappointing employment report last month, it’s no wonder investors are “nervous” ahead of Friday’s data, especially since we’re back in an environment where “good news is good news and bad news is bad news,” according to eToro’s Bret Kenwell.

“While the odds currently favor a 25 basis point cut at the Fed’s September meeting, a disappointing jobs report could shift those odds toward a 50 basis point cut,” he said. “A 50 basis point cut may be good news for equity bulls. However, if the Fed is forced to cut rates by 50 basis points right away, it could indicate that there are greater labor market concerns than previously thought.”

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Kenwell says ideally we would see a report on Friday that is “better than feared,” showing a labor market that has softened somewhat but not weak, allowing the Fed to begin a series of 25 basis point rate cuts.

Andrew Brenner of NatAlliance Securities says that if the economy shows strength in non-farm payrolls, stocks should initially do better, but if interest rates are “butchered,” that would not be good. Conversely, if interest rates rise on weak numbers, it would not be good for stocks either.

“So we find ourselves in a situation where tails we lose, heads we lose,” Brenner concluded.

The jobs report is expected to show a rise in payrolls of about 165,000, based on the median estimate of a Bloomberg survey of economists. While average growth over the past three months is above the modest 114,000 gain in July, it would slow to just over 150,000 – the lowest growth since early 2021.

A survey conducted by 22V Research shows that most investors (44%) think the market reaction to Friday’s data will be “risk-on,” 27% said “risk-off” and 29% “negligible/mixed.”

The figures also underlined a notable change: the unemployment rate came into greater focus this month. The focus on wage growth has since declined further. And 52 percent of respondents expect the number of employed people to exceed the forecast of 165,000.

Labor market data and consumer price index point to a gradual slowdown in the US economy – Nowcasts

For Evercore’s Stan Shipley, the ADP labor market figures released on Thursday and other labor market indicators point to “weak wage developments” in August.

“Tomorrow’s payrolls report could be weaker than expected as ADP estimates are weakening,” said Jeffrey Roach of LPL Financial. “If the payrolls report surprises investors and is weaker than expected, the likelihood of a 50 basis point cut at the upcoming Fed meeting increases.”

While the ADP report has been a poor indicator of nonfarm payrolls in recent years, its correlation with the numbers has improved this year, posing a risk to stocks ahead of Friday’s jobs report.

The moving long-term correlation between monthly changes in ADP and nonfarm payrolls series has strengthened since the end of last year.

Company highlights:

• JetBlue Airways Corp. raised its revenue forecast for the current quarter after the airline said it benefited from rebooking passengers on rival airlines whose flights were disrupted by a technical failure in July.

• C3.ai Inc., a data analytics software company, reported quarterly subscription revenue that was below estimates.

• Hewlett Packard Enterprise Co. reported weaker-than-expected margins, suggesting that its much-watched business of selling artificial intelligence servers is less profitable than previously thought.

• Verizon Communications Inc., which has agreed to buy Frontier Communications Parent Inc. for about $9.59 billion in cash, said it would focus on paying down its debt as the deal closes.

Important events this week:

• Eurozone GDP, Friday

• US non-farm labor market statistics, Friday

• Speech by Fed Chairman John Williams on Friday

Some of the key market movements:

Shares

• The S&P 500 fell 0.5% at 12:41 New York time

• The Nasdaq 100 remained little changed

• The Dow Jones Industrial Average fell 0.9 percent

• The MSCI World Index fell by 0.4 percent

• The Bloomberg Magnificent 7 Total Return Index rose 1.5%

• The Russell 2000 Index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 percent

• The euro rose 0.2 percent to 1.1105 dollars.

• The British pound rose 0.2% to $1.3176.

• The Japanese yen rose 0.2% to 143.42 per dollar

Cryptocurrencies

• Bitcoin fell 3% to $56,305.3

• Ether fell 3.2% to $2,375.93

Bonds

• The yield on 10-year government bonds fell two basis points to 3.74%.

• The yield on German 10-year bonds fell by two basis points to 2.21 percent

• The yield on British 10-year bonds fell by two basis points to 3.91 percent

Raw materials

• West Texas Intermediate crude oil rose 0.2 percent to $69.31 a barrel

• The spot price of gold rose 0.6 percent to $2,510.22 per ounce.

This story was created with the assistance of Bloomberg Automation.

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