Soft Jobs Data Put Stocks on Edge Before Payrolls

(Thursday market open) Major indexes flattened early in what might be a sideways session awaiting tomorrow's August nonfarm payrolls data. While any payrolls release can have a massive impact, July's was off the charts as it sliced more than 250,000 jobs from earlier reports. That's why tomorrow's headline number may be less important than any revisions.

Investors don't have to wait until Friday. They already have jobs news today as the August ADP employment report showed just 54,000 jobs added by private businesses, well below 106,000 in July and missing expectations for 69,000. This follows yesterday's job openings data that missed estimates and sent Treasury yields tumbling. "The report should solidify the expectations for a rate cut later this month and increase the odds of another cut this year," said Kathy Jones, chief fixed income strategist at Schwab. "However, the drop in bond yields may be limited by the elevated level of inflation and the overall solid pace of GDP growth."

On Wednesday, stocks muddled along despite rallies in Alphabet (GOOGL) and Apple (AAPL) following a positive court decision allowing Alphabet to keep its Chrome browser. Though the major indices made a late comeback for the second day in a row, market breadth is sinking, with 80% of S&P 500 stocks declining week-to-date by late Wednesday and hedging activity up.

1. Payrolls seen soft again: August nonfarm payrolls, due at 8:30 a.m. ET tomorrow, is expected to show more weakness at just 78,000 jobs added—up from 73,000 in July—with unemployment rising to 4.3% from 4.2%. A surprise to the downside would heighten concerns about the economy, but those might be outweighed by growing confidence in a more aggressive rate cut path from the Fed. As of this morning, there was a 97% chance of a September rate cut, according to the CME FedWatch Tool, and there are high expectations of at least one more cut this year. Barring any surprises with the main number, investors will want to look beyond the headlines. For one, they'll want to see how broad-based any hiring was, as recent hiring has been concentrated in health care and social assistance. They'll also look at long-term unemployment trends for signs that the percentage of people unemployed for more than 27 weeks—at a two and a half year high in July—is still rising. The foreign-born labor force will also be in focus. It has accounted for nearly all growth in the labor force since the start of the Covid-19 pandemic but has declined sharply in recent months. This means the economy can create fewer jobs without unemployment rising in step, but also potentially limits economic growth.
    
2. Tariffs clip manufacturers: This week's ISM manufacturing report for August—in contraction for the sixth month in a row—featured 14 mentions of tariffs in its comments section, a sign that manufacturers feel the heat. Though mega caps and technology fueled the summer rally, industrials is the second best-performing S&P 500 sector this year, partly on hopes that U.S. economic growth could surge thanks in part to lower rates and industry-friendly policy. Strong performance of sectors like industrials and materials—both of which face tariff challenges—likely needs to continue for the broad market rally to last if tech takes an extended breather. But tariff-related inflation could form a headwind, and recent Fed speakers have increasingly referred to it. ISM non-manufacturing data due today could offer some insight on inflation trends in the services sector, which appeared to heat up in July. The Fed's Beige Book yesterday painted a gloomy picture of regional U.S. economic activity, with the most mentions of inflation since the post-pandemic surge. August job cuts of 85,979 marked a three-month high and rose 39% from July, according to today's Challenger job cuts report.
    
3. Fed vacancy eyed: A Senate Banking Committee confirmation hearing for Stephen Miran, Trump's nominee to fill a Fed vacancy, starts at 10 a.m. ET today. There could be more drama than usual after President Trump attempted to fire Fed Governor Lisa Cook last week, a decision now tied up in courts. Miran may be asked his thoughts on Fed independence. Fed Governor Christopher Waller, appointed by Trump in 2020, stressed the importance of independence Wednesday on CNBC but declined to comment on Cook. If the committee votes to confirm Miran, then a full Senate vote would follow. The White House is pressing the Senate to confirm Miran before the September FOMC meeting. "That timeline is not impossible, but it would be unusual for a high-profile confirmation to move that quickly through the Senate's deliberative process," said Michael Townsend, managing director of legislative and regulatory affairs at Schwab, in his recent look at Washington developments.

• Salesforce (CRM) plunged 7% ahead of the open despite quarterly earnings and revenue from the cloud software giant exceeding expectations. Guidance was conservative, apparently disappointing investors, and the stock might have run into a "buy the rumor, sell the news" scenario.
   
• Broadcom (AVGO) rose 0.4% ahead of results due after the close. Chip industry leader Nvidia's (NVDA) shares have slumped recently, and there's new concern about AI competition from China. Broadcom also has a large software business, putting emphasis on an area of tech that's been under pressure much of the year on AI competition concerns.
   
• Nvidia flattened before the open but is down 7.6% from last month's all-time high above $184. Of note, shares fell below their 50-day moving average of $171.59 the last two days, a chart line the stock hasn't traded under for any significant amount of time since late April.
   
• Figma (FIG) fell 15% in pre-market trading after its first quarterly results as a public company failed to impress investors. Revenue was up 41% from a year ago for the design software firm but missed the average Wall Street estimate. Profit was basically flat, and analysts had expected a larger gain.
   
• American Eagle Outfitters (AEO) soared 27% ahead of the open as the company reinstated guidance for the fiscal year, Barron's reported. The firm had withdrawn guidance in May, citing macroeconomic uncertainty. The new outlook exceeded analysts' expectations. Earnings, meanwhile, also topped consensus.
   
• Several other shares moved today after earnings. These include Ciena (CIEN) rising more than 17% ahead of the open on better-than-expected results related to strong data center demand, while GitLab (GTLB) fell 7% despite topping Wall Street's earnings estimates and raising its profit outlook.
   
• Bitcoin futures (/BTC) fell another 1.5% this morning and remain below their 50-day moving average of close to $115,000.
   
• Campbell's (CPB) heated up more than 7% Wednesday after the food and beverage maker's earnings exceeded analysts' expectations. Campbell’s CEO Mick Beekhuizen said in prepared remarks that the company was benefiting from cautious consumers looking for value by cooking at home.
   
• The 10-year Treasury note yield continued to slump this morning after yesterday and today's weak jobs data, dropping briefly below 4.18% for the first time since early May.
   
• Weekly initial jobless claims and continuing jobless claims today of 237,000 and 1.94 million, respectively, weren't far off recent trends or analysts' estimates.
   
• Gold futures (/GC) traded above $3,600 per ounce, an all-time high. They're up sharply from recent lows below $3,400 based partly on growing global fiscal concerns. Central bank buying is another factor as China tries to diversify foreign currency holdings beyond the U.S. dollar, Barron's reported.

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This three-month chart comparing market breadth over different periods of time shows a notable recent trend. S&P 500 stocks trading above their 50-day moving average (candlesticks) fell to 54% by late Wednesday, a three-week low, down from 70% on August 22. Shares above their 200-day moving average (purple line)—a longer term breadth tracker—are down to 62% from a recent high of 69%, but because it measures a longer-term trend, that number could be slower to fall. The drop in the 50-day this week took it to just above its 200-day moving average, near 52%, a level it hasn't spent significant time below since early May.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

September 5: August nonfarm payrolls and August unemployment.
September 8: Expected earnings from Casey's General Stores (CASY).
September 9: Expected earnings from Synopsys (SNPS).
September 10: August Producer Price Index (PPI) and core PPI and expected earnings from Chewy (CHWY).
September 11: August Consumer Price Index (CPI) and core CPI and expected earnings from Kroger (KR) and Adobe (ADBE).