The U.S. job market is expected to see a modest addition of 108,000 jobs for September, which is a decrease from the previous month's 254,000. This decrease in job growth could be influenced by temporary disruptions caused by hurricanes and strikes affecting the aerospace and hospitality sectors. However, historical patterns suggest that these fluctuations may be overlooked as conditions stabilize.
Despite recent disappointments in job data, the S&P 500 has shown resilience, with any dips being short-lived. The broader economic landscape has been strong, leading to speculation about the Federal Reserve's monetary policy. The current economic surprise index is at its highest level since April 2024, indicating potential for continued growth. However, there are concerns about a resurgence in inflation, which may prompt the Fed to be cautious in its rate decisions.
The upcoming job report will play a crucial role in shaping the Federal Reserve's policy decisions, particularly regarding potential rate cuts in November. The presence of temporary distortions and uncertainties surrounding the U.S. elections may lead to a cautious approach. Analysts predict that the Fed will likely adhere to its initial guidance of a 50 basis points reduction by the end of the year, with possible cuts in both November and December.
For more aggressive rate cuts, a significant downturn in the job market or a surge in the unemployment rate above 4.4% would be necessary. Conversely, if positive economic surprises continue, policymakers may consider holding rates steady into 2025, which could strengthen the U.S. dollar in the global market.
The S&P 500 has experienced limited movement recently as market participants wait for key events such as earnings reports and the U.S. elections. Despite a rise in Treasury yields, the index remains close to its previous record high. This resilience is attributed to the potential return of Trump to the White House, which has influenced market sentiment. The index follows an upward trend, and any retracement may test previous support levels.
Recent sector performance has shown de-risking among investors ahead of the U.S. elections, with some sectors posting losses. Corporate earnings have also influenced sector dynamics, as seen with Tesla's impressive Q3 results. The performance of tech giants will be closely watched to gain insights into their growth outlooks and validate their high valuations.