Why investors are nervous ahead of Friday's employment report

new York
CNN
—

Wall Street is eagerly awaiting Friday's economic data report, which may be the most consequential in months.

Inflation has cooled significantly since the Federal Reserve began aggressively raising interest rates to contain it more than two years ago, prompting the central bank to shift its focus to the other side of its dual mandate: maximizing employment.

Fed Chairman Jerome Powell said last month that “the time has come for a policy adjustment,” effectively sealing a rate cut in September. Now the only question is whether the central bank will cut rates by a quarter or half a percentage point later this month.

Friday's jobs data will be crucial to that decision. At the same time, Wall Street is looking for signs that the labor market is steadily cooling rather than sliding into recession. Economists expect U.S. employers added 160,000 jobs and the unemployment rate fell to 4.2% in August, according to FactSet's consensus estimate.

Preliminary data show that the labor market is continuing to cool. Payroll service provider ADP reported on Thursday that hiring in the US private sector fell more than expected. Companies created just 99,000 new jobs last month.

“We are in an environment where good news is good and bad news is bad, and markets are still trying to figure out whether the economy is slowing too much and whether the Fed is lagging,” Christopher Larkin, managing director of Morgan Stanley's digital brokerage product E*Trade, wrote in a note Thursday.

That uncertainty has been palpable in recent days as Wall Street parsed several economic reports ahead of Friday's main event. Stocks ended Thursday with mixed numbers and are expected to end the week lower. The Dow Jones is down 1.9 percent this week, while the S&P 500 and Nasdaq Composite are down 2.6 percent and 3.3 percent, respectively.

On Tuesday, all three major U.S. indexes posted their worst day since last month's global market meltdown. This came after a new report from the Institute for Supply Management revealed that economic activity in the manufacturing sector fell for the fifth consecutive month in August, renewing fears that the U.S. economy is on shaky ground.

Stock markets struggled to find direction on Wednesday after new data showed job openings fell for the second straight month in July, falling to an estimated 7.67 million, compared with 7.91 million in June, the lowest since January 2021.

“Against this backdrop, it is very easy for equity markets to react negatively to even the smallest perceived bad news,” BeiChen Lin, investment strategist at Russell Investments, wrote in a commentary this week.

Shares of major technology companies gained on Thursday but suffered sharp losses earlier this week. Heavy losses at artificial intelligence titan Nvidia have also helped drag the market down this month. The chipmaker lost $279 billion in market value on Tuesday alone. The stock has fallen 10.2% this week as investors grow increasingly uncertain about whether the stock has more room to run and whether companies' heavy investments in AI products and technologies will add to their profits.

Shares of other tech heavyweights have also fallen. Alphabet shares have fallen 3.8 percent this week, Apple 2.9 percent, Meta Platforms 0.9 percent, Amazon 0.3 percent and Microsoft 2.1 percent. Tesla, the only tech stock in the “Magnificent Seven” to gain this week, is up 7.5 percent.

Elsewhere, oil prices fell during the week on concerns about slowing demand in China, even though the Organization of the Petroleum Exporting Countries and its allies announced on Thursday a further extension of oil production cuts.

As stock prices stabilize after the trading day, levels may change slightly.