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Author: Li Dan, Wall Street News
U.S. stocks failed to rebound on Monday, with the three major stock indexes collectively closing down for two consecutive trading days. Investors turned their attention to the non-farm payrolls report, which was delayed due to the U.S. federal government shutdown, looking for opportunities for a market rebound.Because this belated and blockbuster report on Tuesday may provide key clues about the Fed’s interest rate path next year.
Michael Wilson, chief U.S. equity strategist at Morgan Stanley, believes that if the report shows mildly weak U.S. employment data, it may actually boost the stock market.He pointed out that the market has now returned to a state where good news about the economy is bad news for the stock market, and conversely, bad news is good news for the market.He explained that a booming labor market, while good for the economy, would make it less likely that the Fed would cut interest rates next year.
According to the median consensus forecast in a Bloomberg survey, economists expect non-farm payroll employment to increase by 50,000 in November and the unemployment rate to rise to 4.5%, a new high since 2021.Due to the interruption of data collection by the U.S. Bureau of Labor Statistics (BLS) due to the government shutdown, this report will include some data from both October and November, but household survey statistics such as the unemployment rate in October will not be released.
The belated nonfarm payrolls report coincided with the Federal Reserve’s third consecutive 25 basis point interest rate cut.When announcing the interest rate cut last Wednesday, the Federal Reserve disclosed its updated economic outlook. Federal Reserve officials generally expect U.S. GDP to grow by 2.3% next year and inflation to slow to 2.4%.Although the dot plot shows that most Fed officials still expect only one rate cut of about 25 basis points next year, traders are now betting on two rate cuts next year.
Weak data could be a positive
Wilson pointed out in a research report that although the current strong labor market is good for the economy, it will reduce the probability of an interest rate cut next year.Conversely, weak labor market data will increase the likelihood of further interest rate cuts next year, thereby providing support for stocks.
Strategists at Citi are also optimistic.The team led by Citi’s chief U.S. stock strategist Scott Chronert expects the S&P 500 to rise 12% to 7,700 points by the end of 2026.Strong earnings growth and expectations of loose monetary policy are at the heart of this forecast.”Generally supportive Fed policy is a key assumption in our forecasts,” the team noted.
The MSCI World Market Index hit a record high after the Federal Reserve cut interest rates last Wednesday.Boosted by optimism about the progress of artificial intelligence (AI) and the prospect of loose monetary policy, as of Monday’s close, the S&P 500 and Nasdaq 100 had risen nearly 16% and nearly 20% respectively this year.
There are multiple uncertainties in the report
Due to the record-breaking 43-day U.S. federal government shutdown, this non-farm payrolls report is full of unusual factors.The BLS extended the collection period for November data to allow enough time to collect data after the government shutdown, but cannot retroactively collect October household survey data.
After the number of new non-farm jobs in September exceeded expectations, some economists predicted that the November non-farm employment report would show that as tens of thousands of government employees who accepted the “deferred resignation plan” resigned after September 30, the number of non-farm jobs in October may show negative growth due to large-scale layoffs by the federal government.
The U.S. Federal Office of Personnel Management (OPM) previously stated that approximately 144,000 government employees have accepted delayed resignation plans.Goldman Sachs economists expect this to reduce employment by 70,000 in October and another 10,000 in November.
However, most economists expect nonfarm payrolls to return to positive growth in November.Nancy Vanden Houten, chief U.S. economist at Oxford Economics, expects health care and private education services to drive job growth for the month.Economists’ expectations ranged from a decrease of 20,000 to an increase of 127,000, indicating a high degree of uncertainty in the market.
Unemployment rate expected to hit four-year high
The BLS will not release the October unemployment rate in this report.Economists expect the unemployment rate to rise further to 4.5% in November, a new high since 2021, after an unexpected slight rise to 4.4% in September.Unemployment continued to climb in the three months to September as hiring conditions were subdued and the labor force participation rate increased.The number of announced layoffs has also increased significantly recently, with the October layoff indicator rising to the highest level since early 2023.
The Bloomberg Economics research team pointed out that there will be no unemployment data in October and that November data will be collected later than normal, which may lead to what Powell called “technical” problems, such as problems with seasonal adjustment.Some forecasters said the decline in federal employment could put upward pressure on the unemployment rate in November, which could rise to 4.6%.
A team led by Sarah House, chief economist at Wells Fargo Securities, commented: “We believe (the data) will increasingly show that the ‘full employment’ of the Fed’s dual mission is in jeopardy.”
Policy impact continues to emerge
The latest jobs report will reflect the impact of the Trump administration’s economic policies and other factors on the job market.
Some media pointed out that many companies have cut back on hiring due to the uncertainty caused by the Trump administration’s plan to impose high import taxes on almost all countries.His crackdown on immigration has also had a major impact on the labor market, causing shortages in some industries.In addition, some companies have laid off employees due to the adoption of AI technology.
Brian Wesbury, chief economist at First Trust Advisors, wrote in a commentary: “Given the dramatic policy shift from lax to strict immigration enforcement, the Trump administration’s efforts to streamline government staffing, and layoffs caused by an aging population and AI, job growth should be slow.”
Daniel Zhao, chief economist at Glassdoor, said, “The BLS produces employment reports on such a large scale, and government shutdowns don’t happen often, so there is always some uncertainty when facing the employment report. I think you should be humble when looking at the report and be prepared for any situation.”
On Tuesday, the U.S. Commerce Department will also release retail sales data for October.Economists expect retail sales excluding cars and gasoline to accelerate, pointing to solid consumer demand early in the fourth quarter.Later this week, the BLS will also release November CPI. Since the government shutdown cannot collect October price data, the report will not release month-on-month data. Investors need to rely on year-on-year CPI growth data to judge the direction of inflation.
