Wall Street’s soft-landing optimism set to be challenged by key jobs report

US stocks mixed amid inflation uptick and sentiment rise

US stocks ended mixed on Friday as investors digested fresh inflation data and a revision higher to the Michigan consumer sentiment index. Ahead of the final session in September, the Nasdaq 100 is up 2.2% month-to-date, the S&P 500 has added 1.6%, and the Dow Jones has gained 749 points (1.8%).

On Friday night, the Federal Reserve (Fed)’s preferred measure of inflation, the US core personal consumption expenditures (PCE) price index, rose by 0.1% month-on-month (MoM) in August, bringing the annual rate to 2.7% from 2.6%. Meanwhile, the September Michigan consumer sentiment index was revised up to 70.10 from 69.00, marking the highest level in five months. This mix of low inflation and increased consumer sentiment supports current optimism about the US economy.

US election outlook

Ahead of this week's first and probably only vice-presidential debate, the US election remains on a knife's edge, with a divided Congress likely. There’s also a strong chance that Donald Trump will contest the election results if he loses, leading to uncertainty in the weeks after the election.

Key events to watch this week

Looking ahead, all eyes will be on Friday's non-farm payrolls report. Leading up to it, there will be interest in speeches from several Fed officials, including Chair Jerome Powell, as well as in the Job Openings and Labor Turnover Survey (JOLTS) job openings and Institute for Supply Management (ISM) Manufacturing and Services Purchasing Managers' Indexes (PMI) data.

What to expect from non-farm payrolls

Date: Friday, 4 October at 10.30pm AEST

Last month’s jobs report was mixed. Headline payrolls came in at 142,000, missing expectations of 165,000, with significant downward revisions for the two prior months. July's already weak figure was revised down to 89,000 from 114,000. On the upside, the unemployment rate eased to 4.2% from 4.3%.

This cooling in the labour market prompted the Fed's jumbo 50 basis points (bps) interest rate cut earlier this month, the first since March 2020. Fed Chair Powell described the rate cut as a risk management decision, saying it would help maintain the strength of the economy and labour market.

For September, the expectation is that the US economy will add 140,000 jobs and that the unemployment rate will rise to 4.2%. If the US economy adds 100,000 jobs or fewer and the unemployment rate rises to 4.3% or higher, it could reignite fears that the Fed is behind the curve and reinforce expectations of another 50 bps rate cut in November. The rates market is currently pricing in 38 bps of easing at the 7 November Federal Open Market Committee (FOMC) meeting and a total of 76 bps of rate cuts by year-end.

US unemployment rate chart

Nasdaq 100 technical analysis

Last week's rally saw the Nasdaq 100 finish above the August high of 19,938 and the key 20,000 level, which now acts as short-term support.

As long as the Nasdaq 100 holds above initial support at 20,000/19,930 and a more critical layer at 19,600/19,500, we expect a retest of the Nasdaq 100’s record high of 20,690 before a move towards 21,500.

If the Nasdaq 100 falls below support at the 19,600/19,500 area, it could signal a deeper decline towards the September low of 18,400 and the 200-day moving average. Below that, support is seen at 18,000, drawn from the December 2022 low of 10,671.

Nasdaq 100 cash daily chart

S&P 500 technical analysis

Last week, the S&P 500 built on its break of horizontal resistance at 5670/5650 to finish at fresh record highs. Looking forward, as long as the S&P 500 holds above initial support at 5670/5650 and medium-term support at 5600, we expect the rally to extend towards 5800 as the next target, and then 5850.

However, if the S&P 500 falls back through initial support at 5670/5650 and closes below 5600, it could indicate a deeper decline towards the September low of 5402. Below that, support is identified at 5228 from the 200-day moving average and the August low of 5119.

S&P 500 daily chart

• _{Source: TradingView. The figures stated are as of 30 September 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}