Will Tuesday's Non-Farm Payrolls Save the US Stock Market? JPMorgan Chief: Weak Employment May Boost Stocks

Author: Li Dan, Wall Street Insights

U.S. stocks failed to rebound on Monday, with the three major indices closing lower for the second consecutive trading day. Investors are turning their attention to the non-farm payroll report, which was delayed due to the US federal government shutdown, seeking opportunities for market recovery. This heavyweight report, arriving late on Tuesday, could provide key clues about the Federal Reserve’s interest rate path next year.

Morgan Stanley’s Chief US Equity Strategist Michael Wilson believes that if the report shows moderate and soft US employment data, it could actually boost the stock market. He pointed out that the market has now returned to a state where good economic news is bad news for stocks, and vice versa. He explained that while a booming labor market is beneficial for the economy, it reduces the likelihood of the Fed cutting interest rates next year.

According to the median consensus forecast from Bloomberg surveys, economists expect November non-farm payrolls to increase by 50,000, with the unemployment rate rising to 4.5%, reaching a new high since 2021. Due to the government shutdown causing disruptions in data collection by the Bureau of Labor Statistics (BLS), this report will include partial data for October and November but will not publish household survey statistics such as the October unemployment rate.

The delayed non-farm payroll report coincides with the Fed’s third consecutive 25 basis point rate cut. Alongside the rate cut announced last Wednesday, the Fed released an updated economic outlook, with officials generally expecting US GDP to grow by 2.3% next year and inflation to slow to 2.4%. Although the dot plot shows most Fed officials expect only one rate cut of about 25 basis points next year, traders are currently betting on two rate cuts.

Soft Data May Be a Positive Signal

Wilson noted in his research report that while a strong labor market is beneficial for the economy, it reduces the probability of rate cuts next year. Conversely, weak labor market data would increase the likelihood of further rate cuts, providing support for the stock market.

Citi strategists also remain optimistic. Led by Chief US Equity Strategist Scott Chronert, the team expects the S&P 500 to rise by 12% to 7,700 points by the end of 2026. Strong earnings growth and expectations of loose monetary policy are central to this forecast. The team stated, “Overall supportive Fed policies are a key assumption behind our prediction.”

The MSCI Global Market Index hit a record high last Wednesday after the Fed’s rate cut. Boosted by optimism about advances in artificial intelligence (AI) and prospects for loose monetary policy, the S&P 500 and Nasdaq 100 have respectively gained nearly 16% and nearly 20% year-to-date as of this Monday’s close.

Multiple Uncertainties Surround the Report

Due to the record-breaking 43-day US federal government shutdown, this non-farm payroll report is filled with unusual factors. The BLS extended the data collection period for November to gather enough data after the government shutdown but was unable to trace back to collect October household survey data.

Following a much better-than-expected increase in non-farm employment in September, some economists predict that the November report will show a decline, as tens of thousands of government employees participating in “delayed resignation plans” left their jobs after September 30. October non-farm employment may show negative growth due to large-scale layoffs by the federal government.

The US Office of Personnel Management (OPM) previously stated that about 144,000 government employees participated in delayed resignation plans. Goldman Sachs economists expect this to reduce October employment by 70,000 and further decrease by 10,000 in November.

However, most economists expect non-farm employment in November to rebound positively. Oxford Economics’ Chief US Economist Nancy Vanden Houten expects healthcare and private education services to drive employment growth that month. Forecasts range from a decrease of 20,000 to an increase of 127,000, reflecting high market uncertainty.

Unemployment Rate Likely to Hit Four-Year High

The BLS will not publish the October unemployment rate in this report. Economists expect that after an unexpected slight rise to 4.4% in September, the unemployment rate will further increase to 4.5% in November, reaching a new high since 2021. Over the past three months through September, the unemployment rate has been rising due to a sluggish hiring environment and increased labor force participation. Recent layoffs have also surged, with October layoffs reaching the highest level since early 2023.

Bloomberg Economics team pointed out that there will be no unemployment rate data for October, and the collection period for November data is later than usual, which could lead to “technical” issues as Powell mentioned, such as seasonal adjustment problems. Some forecasters suggest that the reduction in federal employment could put upward pressure on the November unemployment rate, possibly rising to 4.6%.

Wells Fargo Securities Chief Economist Sarah House and her team commented, “We believe that the data will increasingly show that the Fed’s dual mandate of ‘full employment’ is in jeopardy.”

Policy Impact Continues to Emerge

The latest employment report will reflect the impact of the Trump administration’s economic policies and other factors on the labor market.

Media reports indicate that many companies have scaled back hiring due to uncertainty caused by the Trump administration’s plans to impose high import tariffs on nearly all countries. His crackdown on immigration has also significantly affected the labor market, leading to shortages in certain industries. Additionally, some companies have laid off workers due to AI adoption.

First Trust Advisors Chief Economist Brian Wesbury commented, “Given the huge policy shifts from lenient to strict immigration enforcement, efforts to streamline government staffing, and layoffs caused by aging populations and AI, employment growth should be slow.”

Glassdoor Chief Economist Daniel Zhao said, “The scale of the BLS employment report is so large, and government shutdowns are so rare, that there is always some uncertainty when interpreting employment data. I think we should remain humble when reviewing the report and be prepared for any scenario.”

On Tuesday, the US Department of Commerce will also release October retail sales data. Economists expect retail sales, excluding autos and gasoline, to accelerate, indicating robust consumer demand at the start of the fourth quarter. Later this week, the BLS will publish November CPI data. Due to the government shutdown, October price data could not be collected, so this report will not include month-over-month figures, and investors will rely on year-over-year CPI growth to gauge inflation trends.