The release of fresh economic data will be carefully watched by the market.
Experts, banks, and economists have been debating the chance of a mild recession leading to interest rate cuts by the Federal Reserve, which would result in a risk-on rally for stocks, for much of this year.
But as more information—whether about the labor market or the Consumer Price Index (CPI)—has begun to come in, there is now more reason to question this claim. Many people are now concerned that inflation may be more persistent than originally believed and that the Federal Reserve may need to increase interest rates above anticipated levels.
More economic statistics will be released tomorrow, which will help to shape this story even more. The financial market may have a very successful day today. This is why.
The job market is significant.
Tomorrow, a report containing data on the number of new jobs produced in February as well as other significant labor market statistics, will be made public by the U.S. Bureau of Labor Statistics.
Investors and Fed officials have been closely monitoring the labor market, which has been booming, with the unemployment rate remaining at 3.4% in January, close to record lows. According to Fed officials, the tight job market is encouraging spending by causing consumer prices to rise, which has kept inflation sticky. Jerome Powell, the chairman of the Fed, has previously stated that for the Fed to know that it is succeeding in its fight against inflation, there needs to be some deterioration in the job market.
However, according to BLS data, the American economy added more than 500,000 new employment in January, which is significantly more than analysts had anticipated and indicates that the economy is still expanding quickly. The likelihood of a recession or rate cut in 2023 decreases with continued economic strength, and the likelihood increases that the Fed will need to boost interest rates, which have decimated the stock market over the past year.
Powell told the public on Tuesday that the latest economic data are better than expected, which almost confirms what investors were afraid of. This means that the final level of interest rates is likely to be higher than first thought.
In a recent blog article, Harley Bassman, a managing partner at Simplify Asset Management, stated that “immigration (legal or illegal) can no longer fill the gap” as baby boomers leave the workforce due to old age or a (still) sizable 401(k). There are “help wanted” signs in every window I pass.
How the jobs data on Friday might affect stocks
In February, the U.S. economy added 200,000 positions, according to consensus predictions for Friday’s jobs report, and the unemployment rate held steady at 3.4%.
Investors will probably feel relieved by anything close to that 200,000 projection after January’s surprise, in my opinion. A strong labor market, however, is a sign of a stronger economy that the Fed will probably be forced to slow through additional interest rate increases, so if there is another large employment report, I would anticipate a decline in the market on Friday. Stocks may rise if the jobs figure is in the range of 200,000 or less because it may indicate that January’s jobs report was an anomaly and that the labor market may soon start to show signs of weakness.
In any case, I would not advise attempting to predict the market. This is extremely challenging, and the market doesn’t always respond to data in a predictable fashion. I would advise you to keep investing in the stocks you like over the long run and to be ready for tomorrow’s volatility so you won’t be caught off guard.