The October non-farm payrolls data is highly anticipated, with expectations set for the addition of 108,000 jobs in September. This represents a significant decrease from the previous month's strong growth of 254,000 jobs.
Analysts believe that this slowdown may be due to temporary disruptions caused by Hurricane Helene and Milton, as well as strikes in the aerospace and hospitality sectors. These short-term events could mask the underlying trends in the labor market, particularly in hospitality, construction, and manufacturing.
Despite these challenges, there is a sense of resilience in the broader economic landscape. Historical patterns suggest that the markets may eventually overlook these temporary setbacks, as seen after Hurricane Beryl earlier this year. The S&P 500 has shown a tendency to quickly recover from dips, reflecting a strong economic backdrop that continues to exceed expectations. This resilience is important as the Federal Reserve considers its monetary policy in light of the upcoming job report.
The recent economic conditions have led to a more positive outlook for the Federal Reserve, allowing it to take a cautious approach to its easing process. The US economic surprise index has reached its highest level since April 2024, indicating stronger-than-expected economic performance. However, the increase in core inflation in September raises concerns about a potential resurgence in inflation, prompting the Fed to proceed carefully with its policy decisions.
As the Fed prepares for its upcoming meetings, the job report will play a significant role in shaping its strategy. While the central bank may take into account the potential distortions in the job numbers, it is likely to stick to its initial guidance of implementing further rate cuts by the end of the year. A modest 25 basis point cut is expected in both November and December, depending on the economic situation. However, a more severe downturn in the job market, particularly if the unemployment rate exceeds 4.4%, could lead to a reassessment of this strategy.
The S&P 500 has experienced limited movement recently as market participants adopt a cautious stance ahead of key risk events, such as earnings reports and the upcoming US elections. Despite the increase in Treasury yields, which typically poses a challenge for equities, the index remains close to its previous record high. This resilience is largely attributed to the prevailing sentiment surrounding a potential return of Trump to the White House, which has become a significant driver for market performance.
The S&P 500 continues to follow an upward trend, characterized by a rising channel pattern established since October 2023. Support levels are being closely monitored, particularly the 5,674 mark, which has transitioned from resistance to support. A stronger support level is identified at the 5,435 level, where the lower channel trendline intersects with the daily Ichimoku Cloud zone and the 200-day moving average. On the upside, surpassing the October high could position the psychological 6,000 level as the next key resistance point.
Recent sector performance has shown a trend of de-risking among investors, with eight out of the eleven S&P 500 sectors experiencing declines. The broader index has seen a 1.0% drop, with notable underperformance in the materials, industrials, and healthcare sectors. Corporate earnings have emerged as a critical factor influencing sector dynamics, with Tesla's impressive Q3 results leading to a 20% surge in its share price, thereby boosting the consumer discretionary sector by 1.7%.
Looking ahead, the upcoming earnings reports from five of the Magnificent Seven stocks are expected to provide insight into their growth outlooks, which are crucial for justifying their high valuations. The mixed performance among these stocks in recent weeks highlights the importance of these earnings releases in shaping market sentiment and investor confidence. The interplay between corporate earnings and broader economic indicators will be key in determining the trajectory of the S&P 500 and the overall market in the coming weeks.