Source: Wall Street See

Whether the non-farm data in September is too good or too bad, it is not good news.

On Monday, September 30th, John Authers, former chief market commentator of the Financial Times and columnist for Bloomberg, published an article discussing whether the US non-farm data this Friday will once again trigger intense market volatility like it did in August and early September. Authers stated that the latest inflation data cannot prevent rate cuts, and the latest unemployment data also cannot support rate cuts.

Komal Sri-Kumar, President of Sri-Kumar Global Strategies, expressed that if the September non-farm data is too strong, it might 'scare' the market, as this would support the Fed in reducing the size of rate cuts or delaying them, returning the market to the scenario where 'good economic news is bad news for the stock market'; however, if the September employment report is very weak, it could lead to a return of recession fears and result in the market entering a 'bad news is bad news' situation.

Therefore, employment data meeting expectations is the best-case scenario. Jose Torres, an economist at Interactive Brokers, stated: For call investors, the most ideal situation is data close to expectations so as not to disrupt the current expectations of monetary easing.

This Friday, the US Bureau of Labor Statistics will release the September non-farm employment report. Economists generally expect the September non-farm data to show a robust labor market recovery, providing support for the optimistic rate cut expectations in the market. Currently, the market is betting that there is over a 50% chance of a 50 basis point rate cut by the Fed at the November meeting; however, based on the Fed's latest dot plot, FOMC members expect only 50 basis points of rate cuts for the rest of the year, meaning 25 basis point cuts at both the November and December meetings.

The situation is awkward, waiting for the non-farm breakthrough.

In August and September, the macroeconomic data was disappointing, and the US stock market got off to a poor start. In early September, US inflation data was somewhat stubborn, not enough to prompt the Federal Reserve to cut interest rates by 50 basis points directly. However, the Federal Reserve eventually cut rates by 50 basis points. In early August, ISM data and unemployment data seemed to indicate the risk of an economic hard landing.

However, the latest data shows that inflation concerns have eased. Last Friday, September 27, the US Department of Commerce released August PCE inflation data, showing continued improvement in US inflation: whether excluding food and fuel, or using the modified means calculated by the Dallas Federal Reserve, PCE inflation is very close to the 2% target and demonstrates a significant and stable downward trend. This is good news for the Federal Reserve and will not be an obstacle to a 50 basis point rate cut at the November meeting.

However, since the Federal Reserve clearly indicated that it will focus on the labor market, the September non-farm employment data will provide the latest guidance on the Federal Reserve's interest rate path for the year. On Thursday, September 26, the US Department of Labor released data showing that the number of initial jobless claims in the US for the week ending September 21 fell to near multi-year lows, with continued claims rising slightly, indicating a recovering labor market and reduced layoffs.

An awkward situation has emerged: while there is no reason for inflation data to prevent further rate cuts, there is also no reason for employment data to prompt further rate cuts.

The key to the stock market rebound: Will the employment data support the expectation of a substantial rate cut by the Federal Reserve?

As mentioned above, as of now, the US economy is performing well, inflation is under control, and the job market remains stable. However, this week will see the release of September non-farm payroll data and the unemployment rate. Will these data trigger violent market fluctuations like they did in early August and early September? Authers believes that in the face of heightened market sentiment, it is indeed possible.

The key lies in the market's expectations for future rate cuts.

If employment data is too strong, investors may reduce their expectations for future monetary easing policies and return to the situation of 'good economic news is bad news for the stock market.' President of the global strategic company ri-Kumar, Komal Sri-Kumar, told MarketWatch in a phone interview, 'If employment data is very strong, it will definitely make the stock market panic.'

However, the obviously weaker-than-expected employment data may also be seen as a negative signal for the market, leading to new concerns about an upcoming recession. Tom Hainlin, Senior Investment Strategist at the American wealth management company, stated: 'If the September employment report is very weak, the situation will turn into 'bad news is bad news'.'

Other potential volatility risks in the market: elections, economic outlook, inflation expectations.

In addition to the September non-farm data, the US presidential election, the differences in economic views between the two parties, and consumers' and investors' inflation forecasts all affect the US stock market.

Currently, with only five weeks left until the US presidential election, there are risks of volatility in the market - a comprehensive victory for either side may signal significant policy changes, some favorable to the market and others unfavorable. For example, if the Republicans win, Trump's proposed corporate tax cuts are favorable to the market, but the tariff proposal is unfavorable.

Let's take a look at the situation of divided government - since Biden withdrew from the election, the market has been more inclined towards a divided government that benefits the market. In a divided government scenario, although the president has the power to unilaterally implement tariff policies, it still reduces the risk of fiscal overexpansion.

Currently, the market is not showing too much volatility due to the election, possibly because the election results are unpredictable, coupled with the shadow of polling failures in 2016 and 2020, making market participants unable to confidently place bets.

Additionally, the Republican and Democratic parties have huge differences in their views on the US economy. Republicans believe the economy is worse off than the peak inflation year of 2022, while Democrats believe the economy has almost recovered to the pre-pandemic level. Surveys show that Republicans tend to have lower levels of wealth than Democrats, which may partially explain the differences in the two parties' perspectives.

Moreover, consumers believe that inflation in the United States will rise significantly by more than 6% over the next five years, but market participants do not agree and are more in line with the Democrats in believing that the economy has almost recovered to pre-pandemic levels.

Editor / jayden